Yesterday, I decided that it was time to begin rebuilding my Goldman Sachs (GS) position.
Last year, I had sold my position when the financial stocks began taking a hit due the subprime mortgage crisis.
I feel that much of the problems are now priced into the financials and now may be a good time to begin getting back in. I would suggest starting with a small position in the best run, strongest financials.
Goldman Sachs is one of the leading firms that has weathered the past year’s problems very well. I feel quite confident in their abilities in the long term and based on my analysis the stock appears to be a very good value at the current price. I figure the company to be worth about $237/share.
Next, I initiated my position in HP (HPQ). This is a company that I’ve wanted to own for some time now.
Over the years I’ve been in business much of my technology purchases have been HP products. I have purchased (2) HP Desktops, (3) Compaq Laptops, (3) HP Printers, and a HP Business Calculator. The products have generally performed quite well for me over the years and the service has been great.
When I damaged my laptops in the past, the support would be so fast to get it repaired. I would make a phone call, DHL would be at my door the next day to pick it up in a special laptop box. Then, within 2-3 days later, the laptop would appear again at my door all fixed and most of the time the repairs were covered under the extended warranty I purchased, which was usually a great deal. I valued this service very much and it’s why I continued to be loyal.
I’ve also always thought that their products have been the best value in terms of features for price. Whenever I’m looking for a new computer or printer, I usually review all the different brands and I end up choosing the HP product as their product usually provides me the features I need at the lowest cost.
Now is a good time to get in. The stock has pulled back some with the general market problems. The company is strong and getting stronger as it continues to gain market share in the US and abroad. They are becoming a complete one-stop shop for all your IT needs, especially with their merger with EDS. The new management has been great cost reduction and should be able to do same with EDS. HP also should trend higher in the short term as it should see a spike in back to school sales.
The current price is slightly overvalued based purely on intrinsic value, but slightly undervalued compared to competitors such as Dell (DELL), so I’m starting with a small position and I’m prepared to buy more if the price dips further. However, the premium may be warranted if it can continue to increase growth in income at better than expected rates.
Full Disclosure: I own shares of Goldman Sachs and HP.