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Is Hewlett-Packard Stock a Bargain or a Landmine?

I make my share of bonehead calls, but one stock I have gotten right almost every step of the way in the last few years is Hewlett-Packard (NYSE:HPQ).

In 2011, I said it embodied the worst of corporate America, and in the nearly two years since then, I have panned the stock all the way down — here, and here, and after its ugly earnings in the summer, and most recently after a painful analyst meeting in October.

But lately, I’ve started to wonder … would it be crazy to buy into HP stock, or would it actually be a risky but potentially profitable trade?

I’m starting to lean toward the latter.

Sure, the stock is off 70% from its 2010 peak. But it’s also up about 50% from a low of about $11 right before Thanksgiving, and boasts a 3.2% yield even after this run-up.

Consider FY 2014 forecasts of $3.46 in earnings per share, according to Standard & Poor’s. That’s a P/E of less than 5! In other words, the EPS forecast could be slashed in half and Hewlett-Packard still would have a single-digit price-to-earnings ratio.

Yes, it has been gutted by fears of a post PC-age obliterating the desktop and laptop market. However, All Things D has a great post hearkening back to a Steve Jobs quote about how tablets are cars and PCs are trucks.

The gist is that tablets will never fully replace PCs — just as a rise of soccer moms and suburban commutes fueled car growth but never fully killed the pick-up, even if the move away from farm labor has made the ceiling much lower for truck sales. Consider how much money Ford (NYSE:F) still makes on its F-Series even if most people these days are buying sedans and compacts, and you can understand how HP still could manage to carve out a profitable piece of the tech landscape.

And, of course, there’s always the longshot hopes of a turnaround actually working out for the best. It happened at Apple (NASDAQ:AAPL) and IBM (NYSE:IBM), right? And while there are many more tales of failure than success, it’s worth noting that it’s not impossible. HP has the cash to make it work, the reach with current supplier relationships and a brand that still carries a limited amount of cache to attract talent.

Oh yeah, and it also has the PC biz it can still spin off

A lot can go wrong, obviously, as I pointed out in my criticism of HP’s poor analyst presentation a few months ago. Consider that by its own schedule, HP won’t be in “recovery and expansion” mode until 2014. Consider the overhang of the Autonomy buyout — an $11 billion deal that has recently resulted in a Justice Department investigation of accounting irregularities and a huge writedown.

There’s also serious concerns about whether HP’s plan to move into the crowded enterprise space, where companies like Cisco (NASDAQ:CSCO) and  Oracle (NASDAQ:ORCL) are well-established … and even these giants have to be on their guard from smaller, agile upstarts like Red Hat (NYSE:RHT). HP might not have the right culture or personnel to pull this off even if its strategy isn’t that bad.

But the time to buy a value play is when nobody else wants it — and despite the negativity, HP still is profitable, is much larger than rival Dell (NASDAQ:DELL) and boasts a nice $11 billion cash cushion to weather the rough months (or years) ahead.

I’m not sure that a short-term swing trade would be wise considering the big run to end 2012. But if you’re interested in a long-term speculative play, maybe HP could fit into an aggressive corner of your portfolio.

I’m not putting any of my own money in it just yet … but I’m certainly watching it closely, now that it is showing signs of stability after a spectacular crash-and-burn.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a position in Apple but none of the other stocks named here.

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