Dell Inc. (DELL), Hewlett-Packard Company (HPQ): Where To Invest?

On the other hand, Dell’s operating income fell a whopping 71% year-over-year to $205 million, which is reflective of the company’s plan to gain market share in its largest segments. In particular, the company cut the retail price of PCs in an attempt to gain market share, which was effective. Therefore, an investment decision comes down to operational preference, and forward looking expectations.

Where To Invest?

If all goes to plan, and Dell is acquired, then limited upside would exist. But like I said, takeovers fall through all the time, and Dell’s buyout process has been anything but smooth. Therefore, with both companies paying a dividend of 2.3%, trading at 0.42 times sales, and operating in many of the same industries, I still like Dell more than HP – even with the acquisition overhang.

At the very least, Dell Inc. (NASDAQ:DELL) trades flat and becomes a dividend investment in an unstable market until it’s taken private. But if not, then I like the long-term strategy of investing in R&D and their attempt to steal market share to produce long-term growth. I also like that Dell is seeing year-over-year gains in many of its segments despite the overall industry producing year-over-year losses.

In the case of HP, its focus on its enterprise segment is not paying dividends, as none of its major segments are seeing growth. Moreover, the company has backed out of its guidance to produce top-line growth by 2014, and I am not sure that its production of large free cash flow is enough to validate an investment in the declining company.

Final Thoughts

In the end, when I invest in technology, I want to see innovation, R&D expenses, and signs of growth. With Hewlett-Packard Company (NYSE:HPQ), I see none of the above. Where’s the innovation; where’s the R&D; and when will the company ever see growth? Personally, I can not answer any of those questions.

Now, I’m not suggesting that Dell Inc. (NASDAQ:DELL) is a homerun investment: The PC industry itself faces a challenge with double digit year-over-year declines. But in terms of valuation, I think the company is attractively priced, and is moving in the right direction with its strategy, whether taken private or remaining public.

The article Which of These Closely Compared Companies Is Moving in the Right Direction? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.