Ever had a “worst day of your life”?
I’ve had too many to count.
They usually involve a convergence of unrelated disasters. Like the time in college when the bank suspended my account for suspicious transactions … on a day when I was moving from one apartment to another. In the rain.
Try explaining to a bunch of burly movers why you can’t pay them, while your new landlord refuses to hand over the keys until you come up with a cash deposit.
OK, I know that probably wouldn’t qualify as the worst day of most people’s lives. Neither would most of my other ones.
But they sure did feel that way at the time.
When it comes to the stock market these days, every day feels like the worst.
That must be the case for the Alpha Stock Alert subscriber who emailed me to say: “I value your knowledge and opinion but wonder why you are still making trades in this market … is it not time to rethink your position?”
My friend, I rethink my position every day. Multiple times a day.
After all, just like my personal disaster days turned out to be less dire in retrospect, so will these.
That’s why nothing has convinced me that it’s time to stop looking for opportunities in the markets. They are absolutely, positively out there, I promise you.
Today I want to share one of those opportunities with you … an unambiguous investment you can make right now that could potentially earn you 80% upside.
Unanticipated Essentials
Yesterday morning I woke up to an alarming headline.
It said Amazon.com Inc. (Nasdaq: AMZN) was going to stop guaranteeing two-day delivery for Amazon Prime members on nonessential items. It will focus on things such as canned and dry foods, medical products, infant care items and other essentials.
One guy quoted in the article — a fellow musician — said that Amazon couldn’t deliver a guitar cable until late April at the soonest.
Fortunately, I have plenty of those. But I do need something else urgently: a new printer for my home office.
I logged on to Amazon expecting the worst. But lo and behold, home office printers are included in the “essential” category. I can have one by tomorrow.
Then I realized … of course they are essential. Nearly everyone who can work remotely is either already doing it or gearing up to do so.
Looking around my current home office — which has evolved into something close to perfection in the six years that I’ve been in the newsletter business — I worked out what work-from-home newbies would be looking to buy:
- Printers, ink and paper.
- External monitors, keyboards and mice for their laptops.
- USB port extenders.
- Headphone and microphone sets.
- Multiplug outlet adapters.
- Office chairs and furniture.
You get the picture.
After a week or so of working on a company-provided laptop, most people will want to make things more comfortable. So, they’ll invest in a more sophisticated setup.
And one company sells most of the big-ticket items on that list.
Old Name, New Value
HP Inc. (NYSE: HPQ), better known as Hewlett-Packard, is one of the world’s leading manufacturers of personal computers and peripherals.
The company is well-managed, growing and relatively debt-free. Its board has a history of spinning off profitable subsidiaries so that it can remain focused on the core business.
As a result, it has remained efficient and profitable, with the highest return on assets in the computer hardware sector.
And now, this company is extraordinarily cheap too.
Its current price-to-earnings ratio is about one-third of what it was a year ago, and more than 65% less than the median for its sector. Its price-to-sales ratio is 80% less than its peers’.
For most of last year, Hewlett-Packard traded between $22 and $25 per share. It enjoyed a consistent support level at the bottom of that range, before slipping slightly toward the end of last year on concerns about the U.S.-China trade war.
As I wrote this on Monday, the stock was trading at $13.80. I see HPQ getting back to $25 a share quickly.
That’s more than 80% above its current price — an excellent upside.
On top of that, HPQ’s forward dividend yield at today’s price is over 5%.
The company has grown its dividend by over 18% over the last five years, and at its cheap current price, you could be looking at a dividend yield on cost of more than 10% within two years — or even less.
The bottom line is that Hewlett-Packard is one of those companies that’s insanely valued relative to its potential. That potential will be realized more quickly than other companies’ now that the work-from-home trend is picking up and Chinese suppliers are coming back online.
So yes, I still recommend trading … as long as you’re smart, tough and remember that as bad as today may be, it won’t stay like that forever.
Kind regards,
Editor, The Bauman Letter