The Calm After The Storm
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The eastern United States just experienced one of the worst storms on record. A combined hurricane and no'easter plowed into southern New Jersey and then wrapped itself around Pennsylvania, New York, and New England, driving a wall of water up to 15 feet high onto the beaches and city streets. Sections of several large cities, including New York and Atlantic City, were reported to be under water. High winds (there were gusts over 80 mph in some spots) caused widespread power outages and toppled trees onto houses and cars. Unfortunately, lives were lost.
The stock exchange was closed due to the storm. That might have been a good thing for some stocks that have been battered recently. Will the break in the action help them recover?
One of those stocks was Apple (NASDAQ: AAPL). Since announcing that 5 million iPhone5 units were sold over the first weekend that they were available, somewhat below what many analysts were expecting, and as problems surfaced with the new iOS map app, the company's share price has dropped by about 13%. Previously the stock had hit an all-time high of $705.
Reaction to the earnings announcement on Oct. 25 didn't help matters. Even though EPS increased by 24% and revenue climbed by 27%, which looked good on paper, it didn't satisfy the Street. Numerous articles and blogs indicated that Apple had lost its way and things didn't look good for the company.
Can Apple ride out the storm? It remains to be seen if it can overcome the many negative reports. Certainly all the fundamentals remain in place for future success of the company: solid revenue and earnings growth momentum going forward, plenty of cash, a newly refreshed product line in place for the holiday shopping season, and no debt.
Another tech company beaten down recently is the once high flying and legendary Hewlett-Packard (NYSE: HPQ). It has lost about half of its value this year, and its market cap is now less than $28 billion. The company is losing money and has lots of debt . Can HP overcome its problems and also deal with a general decline in the PC industry? Analysts that follow the company think it could happen, and have projected the company to make money going forward. However, I think it would take quite an effort by CEO Meg Whitman to pull off a success. Might be a good stock to stay away from unless you like turnaround stories and can handle risks.
Another company seemingly losing its luster lately is Chipotle Mexican Grill (NYSE: CMG). Since April it has seen its value plummet by over a third. Until then it had even outperformed Apple since 2007. Contributing to the drop off was hedge fund guru David Einhorn, who dissed Chipotle about a month ago in favor of a rival Mexican fast food restaurant. The stock dropped $20 in a matter of minutes after the statement was made public.
Before the fall, the company appeared to have great fundamentals in place: strong EPS growth, an increasing pile of cash, good management practices, and no debt. One possible warning sign earlier this year was a relatively high P/E. It has since decreased to a more reasonable level. Was that the problem? Or is the company past its heyday?
I'll go back to the PC industry again. Another titan of the business, Dell (NASDAQ: DELL), is riding the wave downward as well. It's stock has dropped 38% year-to-date. Unlike HP, Dell is making money, with EPS that has grown 39% this year. It has averaged almost 11% growth over the last 5. However, with PC sales now in freefall and with a fair amount of debt, it may be difficult for Dell to continue growing. It may have to diversify in order to succeed. Maybe the mobile industry?
The Internet search giant and mobile operating system provider Google (NASDAQ: GOOG) has declined by about 13% over the last month. The company announced "subpar" results in early October. Revenue increased by nearly 50%, but EPS dropped by 21%. Over the previous 5 years earnings had been growing by nearly 25% on average. Analysts, I think, overreacted by looking at results from only one quarter and tried to project the future by looking at every bit of information available (including past health problems of CEO Larry Page).
Once the market reopens, we'll see what happens to the shares of the companies I mentioned above. Is the damage done, or can the ship be righted?
Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Dell, and Google. Motley Fool newsletter services recommend Apple, Chipotle Mexican Grill, Dell, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.