I listened to Jim Mellon's talk at the Master Investor Show on Saturday which was as usual a thought provoking speech. He focused mainly on technological changes over the next 15 years, (driver-less cars, robots, 3d printing etc) and the implications for the way we live, employment etc.
His conviction sells were bonds, the S&P 500, the Swiss Franc and on the Buy side he was still keen on Japan, Fanuc, (a Japanese robot manufacturer), Life Sciences and Hewlett Packard.
HP interested me especially as I see it has a StockRank of 95 (V 83, Q 91 M 60). It is on a PE of 9.1x October 2015 and on a price/ free cash flow of only 9.6x.
It is highly ranked on ROCE 12.2% (17th out of 74 companies in its sector) and ROE 18.3% (8th out of 74). Price to sales stands at just 0.56
Balance sheet looks okay with net debt having fallen from $22bn in 2011 to just $4.4bn last year.
Superficially it looks interesting: does anyone have any research/ info on HP and/or have any idea why Jim Mellon would have picked it as one of his conviction Buys please?
It is a complex situation, I have looked at them a few times before and just realized I understand very little about what they do (the Enterprise stuff esp.). That said, I did actually spot quite an interesting article in the Economist last week about Hewlett Packard and others (http://www.economist.com/news/business/21648685-cloud-computing-prices-keep-falling-whole-it-business-will-change-cheap-convenient). The point I find most interesting is that the transition to the cloud is a big threat to the enterprise biz because the cloud providers have enough scale to go direct to factories.
As a result, it is kind of hard to point out what area of this business is actually sustainable (the Personal side of the business is obviously a bit of a mess). Huge cashflow but a melting ice cube and the risk that management waste money (Autonomy). I don't follow tech but I know Seagate and Western Digital are two examples of melting ice cubes that are working out well, largely due to rational capital allocation (I believe). HP doesn't look like these guys though, it just looks like a big hairy mess. Would love to hear what other people think, I could be quite wrong here. It is great to see a US company make an appearance either way.
