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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (49210)	8/25/2012 2:39:32 PM
From: Spekulatius	1 Recommendation Read Replies (2) \| Respond to of 78702

The FCF yield is only high if you don't count what they spent on acquisitions. They spent for example 10B$ for Autonomy, which apparently is already a basket case. Then they have done other acquisitions like Palm, EDS where Palm is a total writeoff and EDS at least a partial one (they just did a goodwill writeoff for EDS, which means that accountants believe that HPQ will not be able to generate enough earnings with this acquisitions to justify the purchase price). The question is what is going to happen going forward. HPQ is has huge secular (imo) headwinds in the printer and PC business that they need to address somehow. My suspicion is that one balance sheet is fixed, more (hopefully better thought out) acquisitions are likely to come, in order to fill product line gaps and keep revenues from collapsing in dying business lines , like what is happening with PBI. My tke is that FCF is not really worth much, if you fight secular headwinds and have to deal with shrinking business. You can choose to distribute the cash like PBI and just die with your business (look at PBI stock as an example to see how this works out) or fight by investing the cash flow in growing business (at high multiples usually) which is what DELL and probably HPQ is going to do. I am not sure I want to invest in any of these alternatives, if I want to own a software company, which is what HPQ want to become, I just buy MSFT or ORCL stock (which are reasonable valued) and don't have to deal with the part of the business, that experience headwinds.