Mad Money

Tech's Pain Could Be Hewlett-Packard's Gain

Cramer’s seeing tech shortfalls everywhere. Advanced Micro Devices and Intel are killing each other in price wars, disk and memory-makers are suffering, and the once-great Dell now needs its founder to retake the CEO spot to turn the company around. But all this could be good news for Hewlett-Packard.

Hewlett Packard

Expect an earnings upside surprise when that company reports May 16, Cramer says. These other tech firms are languishing because the parts they sell, the innards of PCs, are under pressure from weak pricing. That means the cost for HPQ to make its computers has come down – but it’s still selling them at the same price. So with suppliers charging less money and a key competitor like Dell hurting, Hewlett-Packard could stand to gain big from the increased profit margins.

Hewlett Packard Pt. 2

There’s a good chance under these conditions that HPQ could beat the 65 cents per share estimates analysts are predicting. Cramer thinks they’ll earn more than $2.73 a share for the year, too. He did the math and at that estimate HPQ is trading at only 15.7 times 2007 earnings. To offer a comparison, Dell trades at 21.3 times this year’s estimates, and its business isn’t half as good right now.

In case you’re wondering how Cramer can predict an upside surprise, he looks for a company’s costs to come down while it charges the same prices for its merchandise, all under the radar of analysts. That’s HPQ, he says. The computer maker is also enjoying a strong international business as well, and we all know Cramer loves that.

Questions? Comments?