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Mutual Funds

Don’t give up on stock in PCs

All the buzz about mobile devices might lead you to believe the PC’s future is bleak.

Just this week, Apple unveiled the iPad Mini, barely a month after the iPhone 5 rollout. Even Microsoft, a driving force in the rise of desktop PCs, is ramping up its mobile game. It’s launching its first tablet, the Surface.

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Indeed, one research firm projects that PC shipments are likely to post an annual decline this year for the first time since 2001. That outlook is reflected in the trouble of two PC pioneers. Shares of Hewlett-Packard Co. are down 45 percent this year, and Dell Inc. has fallen 37 percent.

HP’s stock is at its lowest level since 2002, when the bubble in Internet stock prices popped. Dell hasn’t been this low since early 2009, when the market bottomed out following the financial crisis.

It’s bad news for investors in mutual funds that count HP or Dell among their biggest stock holdings. But despite recent disappointing performance, the some funds are holding onto Dell and HP and suggesting investors be patient.

Weitz Research comanager Barton Hooper sees strong potential in these stocks, priced at a discount. Although he concedes that the days of rapid growth for PC makers are over, he notes that once-dominant technologies don’t disappear quickly.

Here’s an outlook on HP from Hooper, and a look at Dell from two fund managers who own that stock:

HP: Slow turnaround

This Silicon Valley icon is trying to recover from years of miscalculations and management turmoil. Dozens of acquisitions dating to mid-2007 have largely turned out to be duds, and HP recorded its biggest quarterly loss ever in this year’s second quarter.

Then there’s the revolving door to the chief executive’s office. Two were removed in two years, leading to last year’s appointment of former eBay chief Meg Whitman.

HP is also scrambling to catch up in cloud computing, the distribution of software applications over the Internet from remote data centers.

HP still has the world’s biggest printing and ink business, but that’s not a promising area as on-the-go computing becomes more common.

Hooper believes HP can begin posting earnings growth as soon as 2014 if it can succeed on two fronts.

First, HP must show progress in restoring its enterprise services business for corporate customers. HP has acknowledged neglecting that business after its 2008 acquisition of services company Electronic Data Systems.

Second, HP must generate profit growth from printers and ink by controlling expenses in a business segment that Hooper says has been run inefficiently.

Another reason to like HP stock at its current low price of about $14 per share is its quarterly dividend of 13.2 cents. That’s a dividend yield of 3.7 percent, an attractive return during these times of puny interest rates.

Dell: Diversifying

The Texas company made its name selling PCs. But profit margins in the consumer PC business have been shrinking for years. Meanwhile, Dell has been pressured by the popularity of tablets and smartphones, and the reluctance of many companies to buy new workplace PCs amid a slow economic recovery. As a result, Dell has been moving beyond PCs with recent acquisitions to expand in cloud computing, data storage, and technology consulting. Those moves may not pay off for years.

Greg Estes, lead manager of the Intrepid All Cap Fund, believes investors are ignoring the number three global position in PC sales of a company that generated $61 billion in revenue last year.

‘‘The bottom line is Dell still sells lots of laptops and desktops,’’ Estes says. ‘‘And when I go into any office, guess what’s on the desk? It’s not an iPad, it’s a desktop.’’

Another appeal? The company paid its first-ever quarterly dividend this month, 8 cents a share. With the stock trading at around $9.25 per share, the yield is a sizable 3.5 percent.

Brian Frank, of the Frank Value Fund, believes the stock price assumes the PC business is in terminal decline.

‘‘I don’t think the PC business is going away anytime soon,’’ he says. ‘‘The consumer PC side is definitely under pressure, but there is still a place for the PC in the workplace.’’

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