Buy HP, Sell Dell

Even buy-and-hold investors can't afford to let their portfolios collect cobwebs. Valuations and fundamentals change perpetually, and shareholders need to know what they're holding -- and if there's more potential for growth elsewhere. Here we take a look at some stocks worth swapping.

You won't find too many fans of Hewlett-Packard (HPQ) these days.

The stock got pounded last week, after the PC giant made a costly software acquisition, nixed its fledgling webOS initiatives, and lowered its near-term financial outlook.

This is just the latest round of blows at HP, which has seen its stock shed 43% of its value -- or more than $35 billion in market cap -- since Mark Hurd was unceremoniously ousted as CEO last summer in a bogus expense report scandal.

It's been a rough time for PC makers, as they realize that being in the box business is the same thing as being in the coffin business. Casual consumers are embracing "good enough" computing, opting for tablets and smartphones instead of buying new laptops or netbooks. The outlook may seem to be better in Corporate America, but the popularity of cloud-based enterprise software makes it less important to upgrade a company's fleet of computers. It's all about the cloud-serving servers at the other end of the computing experience.

In short, outside of servers, the box makers need to start thinking outside of the box.

Giving Dell Its Due

Things could be worse for HP: For starters, it could be Dell (DELL), which has been losing market share at a more problematic pace than HP over the past year, and it's also been slower to the reinvention process. Dell is just starting to make the model-widening acquisitions that HP has been making for years.

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Dell is now following HP, which is following IBM (IBM) by emphasizing high-margin business services and enterprise software over the sluggish hardware realm. This makes sense strategically, but what will happen when this becomes a cutthroat niche given the crowded playing field?

Investors need to go with the cheaper play here, and -- right now -- it's HP.

The HP Way

Analysts see Dell earning $1.92 a share this year, and barely growing that to $1.93 a share next year. HP is no speedster, but the $5.01 a share that the pros are targeting for this year's profitability, and the $5.35 a share being projected for next year, make HP the faster-moving of the two.

The comparison gets even better when it comes to earnings multiples. Dell may seem cheap in trading for a little more than seven times this year's bottom-line estimate, but HP's P/E is actually less than five.

There will probably be more speed bumps along the way -- for both companies -- but all of that gloom and doom appears to already be priced into the shares.

I'll stick with HP.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services have recommended buying shares of Dell.