Tue09162014

Business & Real Estate

Waiting for the shoe to drop

After the Nov. 6 election, the Dow industrials slumped for a week but bounced back on optimism that Congress can avert the fiscal cliff. Since the June low of 12,101, the Dow Jones industrial average is up nearly 9 percent.

This is still no reason to be bullish and call your broker to increase your stock-market exposure until the Dow industrials exceed the October high of 13,610. With all the political problems in Washington, D.C., there will be volatility as the numbers move up and down.

A prudent measure would be to continue holding 10-20 percent of the portfolio in a short-term bond fund until the spending cuts and tax hikes take effect Jan. 1. Taxes are going up. But will they affect everyone or only target the wealthy?

The uncertainty about capital gains for next year confronts investors. Currently taxed at 15 percent, they will be taxed anywhere from 20 to 40 percent in 2013, depending on political whims. This is the dilemma for an investor holding stock in Apple Inc.

Following are summaries of Town Crier “50” Weekly Stock Index companies in the headlines.

• Hewlett-Packard Co. (HPQ; $12.75) shares plunged to a 10-year low after the company announced another massive write-down. HP said it would take an $8.8 billion charge on Autonomy, a software company it acquired last year for $11 billion. HP said the charge relates to misrepresentations made by Autonomy before the deal.

Revenue dropped 7 percent to $29.96 billion, missing analysts’ projections because business in printing, personal computers and services has contracted. CEO Meg Whitman said the company’s profits would likely continue to decline in coming quarters. Last quarter HP took $9.2 billion in charges, primarily a result of the 2008 acquisition of Electronic Data Systems.

Stock analyst Jim Cramer believes HP is a sell.

“I am a huge believer that when you have accounting difficulties, you sell that stock. Period,” Cramer said on CNBC. “If you don’t own Hewlett now, take a pass. If you do, take advantage of any bounce and exit immediately.”

• Intel Corp. ($19.77; INTC) made news last week when CEO Paul Otellini said he would retire in May. Intel’s mandatory retirement age is 65, and the announcement caught investors by surprise because Otellini is only 62.

The retirement news plunged Intel shares to a 14-month low, but the stock is still considered a long-term buy. Priced at nine times earnings, Intel is a bargain given its growth rate and a 4.6 percent yield on the dividend.

The new CEO must help Intel navigate the mobile-devices market, which includes tablets and smartphones. Intel came under fire because the company missed the mobile revolution.

Intel’s semiconductors have had a reputation as battery hogs. Intel expects the trend to change in 2013, when a new processor makes the devices lighter and gives them longer battery lives.

Numerous executive recruiters want to help in the CEO selection, but because Intel is so complex, analysts who follow the company suggest that the new CEO should come from within.

Disclosure: The author of this article maintains a small exposure in Intel.

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