By George Putnam, The Turnaround Letter

After a big run-up in the tech bubble of the late 1990's, Hewlett-Packard (HWP) has bounced around quite a bit ever since, as the company has struggled to maintain growth. From a post-bubble high of $54.75 in April 2010, the stock has dropped by nearly 60%.

Leadership has been an issue, with a frequently dysfunctional board of directors and four different CEO's since 2005. But the company has a lot of the things that we look for in a turnaround: solid core business, well-known brand, solid financials and a change in top management. The question is: Can they actually turn things around? We think the answer is yes.

The argument against HP is that several of its largest segments, such as PC's and printers, have become low-margin, "commodity" businesses. We tend to disagree with that. 

We think that by focusing its efforts -- as opposed to flip-flopping and floundering as it has done for the last couple of years -- HP can continue to grow revenues and profits in these sectors.

And even if one or more of these sectors does stagnate, they provide a good platform from which to launch new, more profitable initiatives.

Meg Whitman, the new CEO, appears determined to get things back on track. She certainly has good credentials, having helped take eBay from essentially zero to $12 billion in revenues and $50 billion in market cap. 

Rather than making a flashy acquisition, Whitman's first steps have focused on rebuilding the current businesses and making them more efficient and customer focused. She recently announced that the company would cut its workforce by 8% or 27,000 employees.

Whitman has plenty of financial resources to support her rebuilding effort. Although the company does have a moderate amount of debt, it also has more than $8 billion in cash and reasonably solid cash flow. Last year HP had revenues of $127 billion and earned $3.32 per share. That's a lot to work with.

HP has reinvented itself several times over its history successfully. We think it can do it again under Whitman. 

While our analysis is less than scientific, H-P right now feels to us a lot like IBM did a couple of decades ago when it transformed itself from a mainframe computer maker into a services powerhouse; and like Apple did in the early 2000's before Steve Jobs rebuilt it into a tech juggernaut.

In the meantime, the stock looks just plain cheap. It trades at a trailing price-to-earnings ratio of less than nine and a price-to-sales ratio of 0.36. 

In addition, the stock has a 2.4% dividend yield. Compare this company, with its long history of market leading products, to Facebook with a price-to-earnings ratio of 65 and a price-to-sales ratio of more than 15: for us at least, it's no contest. We recommend buying HP up to $30.

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