Oracle Corporation (ORCL) & Hewlett-Packard Company (HPQ): What Technology Business Is Good for Us to Buy Now?

Hewlett-Packard – good future but a lot of goodwill and intangible assets

In 2011, Hewlett-Packard Company (NYSE:HPQ) spent around more than $10 billion to acquire Autonomy, only to write it off at as much as $8.8 billion in the last quarter of 2012. Interestingly, out of those $8.8 billion impairment charges, $5.5 billion was caused by “serious accounting improprieties.”

Since the beginning of the this year, however, Hewlett-Packard Company (NYSE:HPQ)’s share price performance has been quite outstanding, rising as much as 74% to $24.80 per share.

The company has been experiencing an ongoing business restructure under the leadership of Meg Whitman. She realizes the importance of an increasing mobile computing trend, saying that Hewlett-Packard Company (NYSE:HPQ) was moving towards that. On the other hand, Whitman feels that the company has to adapt to the fast-changing nature of the technology field.

According to Barron’s, Hewlett-Packard Company (NYSE:HPQ) was Goodhaven’s top holding. Pitkowsky, the Managing Partner at Goodhaven’s fund, commented that Hewlett-Packard Company (NYSE:HPQ)’s $20 billion debt was lower than it seems to have as the company did not have a separate financing arm. Consequently, a lot of its long-term debt was offset by customer receivables. Looking forward, the company will reduce costs, divest non-performing assets to grow its earnings in the next year.

At $24.80 per share, it is worth $47.80 billion on the market. The market values Hewlett-Packard Company (NYSE:HPQ) at nearly 4.4 times its trailing EBITDA. What makes me worry, though, is the company’s huge goodwill and intangible assets of more than $35 billion, which is much higher than its equity of $22.5 billion. The huge amount of goodwill and intangible assets are quite vulnerable to future write-offs, wiping out its equity.

My Foolish take

Among the three companies, I like Oracle Corporation (NASDAQ:ORCL) the most with its global leading positions, profitable operations and a lower valuation compared to Salesforce. Moreover, it offers its investors a dividend with a yield of 1.6%. Interestingly, it was quite conservative in dividend payment with a low payout ratio at only 13%. The company could easily increase its payout ratio to return more cash to its shareholders via dividends.

The article What Technology Business Is Good for Us to Buy Now? originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG owns shares of Oracle. The Motley Fool recommends salesforce.com, inc. (NYSE:CRM). The Motley Fool owns shares of Oracle Corporation (NASDAQ:ORCL). Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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