HP (HPQ) Rallies to a 2-Year High

The old Hewlett-Packard spun off its fast-growing enterprise and cloud computing businesses into Hewlett Packard Enterprise Company (HPE) in November 2015, isolating the slower-growing personal computer and printer businesses in HP Inc. (HPQ). Things haven't turned out the way that executives planned because HPQ has outperformed its cousin by a country mile since the start of 2016, posting a total 102% return compared to HPE's meager 32% return.

This divergence has intensified in 2020, with HPQ now trading at a two-year high while HPE remains stuck in the mud, about 24% below the last trade of 2019. There's really no excuse for this poor performance because cloud computing, artificial intelligence, and the Internet of Things (IoT) are growing at a phenomenal rate, exposing the failure of management to build market share through superior products and services.

It makes perfect sense to avoid HPE at all costs right now, but HPQ has rallied within striking distance of the 2018 high, which is situated just four points below 2000's all-time high posted by the formerly combined operations. Accumulation-distribution readings have lifted to 10-year highs at the same time, suggesting that the stock could eventually break all resistance levels and trade at much higher prices.

Wall Street consensus is mixed despite HPQ's strong performance, with a "Hold" rating based upon two "Buy," four "Hold," and one "Sell" recommendation. Price targets currently range from a low of $21 to a Street-high $30, while the stock is set to open Thursday's session on top of the median $24 target. However, Morgan Stanley just upgraded HPQ on Wednesday, with analyst Katy Huberty highlighting the opportunity for targeted acquisitions to enhance growth.

HP Long-Term Chart (1998 – 2020)

A historic uptrend hit an all-time high at $31.33 in 2000, giving way to a steep descent that ended at $5.31 in 2002. The stock performed well during the mid-decade bull market, rallying within seven points of the prior high in 2007. A selloff into the lower teens during the economic collapse got bought aggressively, lifting the stock back to the prior peak in 2010. That marked the highest high for the next eight years, ahead of a brutal downtrend that tested the 2002 low in 2012.

A two-legged recovery reached 2007 and 2010 resistance in 2018, triggering a quick rally, followed by a failed breakout that reinforced resistance in the mid-$20s. The stock posted the third higher low since 2009 during the pandemic decline and turned sharply higher, reaching within three points of the 2018 high in Thursday's pre-market. In turn, that marks the highest high since November 2018, confirming growing strength.

The monthly stochastic oscillator hasn't reached the overbought zone yet, despite nearly vertical price action since October. In turn, this raises odds that the rally can stretch into the 2018 high and complete the final stage in a multi-decade inverse head and shoulders pattern (red lines). A breakout would yield a measured move target in the mid to upper $40s, easily clearing final resistance at the 20-year-old high.

The Bottom Line

HP is outperforming Hewlett Packard Enterprises by a wide margin and could test the 2000 all-time high in the next 6 to 12 months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.