Best Buy, Netflix, HP advance sends wrong signals
These profoundly challenged companies are experiencing a short-term rally after punishing long-term investors.
By Douglas A. McIntyre, 24/7 Wall St.
As the first quarter ended, analysts marveled at the best performing stocks in the S&P 500 -- Best Buy (BBY), Netflix (NFLX) and Hewlett-Packard (HPQ). In each case, the improvement has a foundation in how much the shares dropped over two years while the overall economy picked up, more than any real recovery of the business prospects of each.
Wall Street sometimes gives public companies the benefit of the doubt when they try to improve their troubled businesses. That only works for so long, as the prices of stocks like Nokia (NOK) and Blackberry (BBRY) have shown. One slight stumble, or one quarter that is short of expectations, sends share spinning down again.
Best Buy shares rose 80% in the first quarter, but they are down 25% over the past two years. No one has adopted the position that the company can recover from the beating it has taken from Amazon (AMZN), which means that the greatest hope for the electronics retailer is that it can cut costs as it tries, without success, to gain a prime position on the Internet. The hope of a recovery is based on closing stores.
The argument for Netflix is that its subscriber base has started to grow again. Early indications are that its foray into original programming might work as a way to gain market share from other online movie rental operations, particularly those from Amazon and Apple (AAPL). But the positive case for Netflix is undermined by the costs of content it licenses from large content producers. They know that Netflix cannot do well without them, and they have begun to price their products accordingly -- higher with each new round of negotiations. Shares in Netflix are down 20% over the past two years.
The least likely candidate for a price recovery was Hewlett-Packard, the shares of which moved up almost 60% this year but are down 40% over the past two years. Its board was almost voted out of office by shareholders recently. The debacle over the accounting mess caused by its buyout of Autonomy has just started. Investors have to hope that HP is worth more than the sum of its parts and that CEO Meg Whitman will take advantage of that by selling some operations, like its PC business. Or, HP can continue its habit of cutting thousands of jobs each year, a temporary means to help earnings.
Not a single one of these three companies has any chance for a permanent recovery.
More from 24/7 Wall St.
Fact, for every Dell computer that fails, or needs upgraded, an HP is replacing it. HP has become the go in business, for computer replacement. I've noticed personally everyone in my circles are using HP products on anything going forward.
Who else is out there besides Dell? And we all know Dell is having issues. Nice trendy computer for its time, but going forward, HP has much more to offer to the business world.
Expect every Government around the world, upgrading their existing systems, to serious look at HP for products and services.
HPQ will be another Apple Computer comeback story, as HP replaces Dell in the business world.
Copyright © 2014 Microsoft. All rights reserved.
What does the country have to do with the price-to-earnings ratio of the S&P industrials? From here on in, everything.
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