BY Dennis Hobein:

Contributor, Stock Traders Daily

Real Time Trading Reports:  Included are detailed trading reports designed to help investors realize opportunities in these companies.  The reports are linked to the stock symbols in the article below.

 Performance - Click Here

(La Jolla, CA)  Shares of Hewlett-Packard (NYSE: HPQ) have been on quite a ride since the beginning of March, nearly doubling since then. With the exception of one modest pull-back in May, the ride higher has been practically uninterrupted. Of course, many tech stocks have enjoyed massive gains over this time-period – the Powershares QQQ Trust (Nasdaq: QQQQ) is up 65% -- but HPQ has been even stronger. Therefore, the question is, “What has been driving this move and are shares now overpriced?” Below, we examine this issue, but for those interested in developing a specific trading strategy for HPQ (or any stock mentioned in this article), we strongly suggest reviewing our free trading reports as well. Our trading reports provide investors and traders with invaluable risk control tools.

H-P Deserves A Premium Over Its Peer

After the close tonight, the company is scheduled to report its fourth quarter results. The Street is expecting H-P to report EPS of $1.13 on revenue of $30.36 billion, which would equate to year-over-year earnings growth of 10% and a 10% drop-off in revenue. Any meaningful revenue growth has remained elusive for the company over the past two years, but it has excelled in managing its costs and has kept its top-line fairly steady. This has helped H-P to either “meet or beat” analysts’ earnings estimates for each quarter since 1Q08. The results look even better when compared against its rival Dell (Nasdaq: DELL). That company reported a weak quarter on November 19^th in which it missed both top and bottom line projections. Even more frustrating for shareholders of Dell is the fact that its suppliers -- such as Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT) – have been making significant strides towards sustained growth and have been commenting on how its end-markets are improving. Perhaps Dell will benefit from a boost in sales due to MSFT’s release of Windows 7, but people have to question whether its attempted turnaround will ever come to fruition.

Valuation & Technical Set Up May Suggest Further Upside

From a backwards-looking valuation standpoint, H-P seems to be fairly valued, with a trailing P/E of 17x compared to Dell’s 16x and IBM’s (NYSE: IBM) 13x. However, using a 1-year forward P/E, H-P’s valuation looks more attractive, at 12x, with a PEG of 1.2x. Even with the surge in share price, we can conclude that the stock is still reasonably valued. Taking a look at its weekly chart, we see that the stock recently broke above its $50 resistance level and is now approaching its 52-week intraday high of $51.43 that was just set last Friday. A strong earnings report could lift the stock to the pre-recession levels of October 2007. Also of interest, HPQ’s long-term monthly chart shows that the stock completed a multi-year “cup-and-handle formation” early this year, and has been rallying higher ever since. Of course, a disappointing earnings report would mitigate the bullish sentiment on the stock, but there are clear reasons to feel positive about its near-term  prospects. For those interested in entering a H-P trade, we suggest reading our free trading report by clicking here.