After a week of down days, the market climbed back Friday on the news of an upbeat November jobs report and a five-month rise in consumer confidence.
The Dow Jones industrial average reached an all-time high Nov. 27, and the primary trend has been bullish. Very few losers could be found on the Dow Friday at noon, with few components not in the shiny-green territory. The Dow hit a recent high of 16,174.50.
It appears that the market is becoming comfortable with the Federal Reserve’s decision to taper its bond-buying, a scenario that parallels a stronger economy. The 203,000 increase in payroll employment means a better economy, and that could bring on the taper sooner when the Federal Reserve meets later this month.
Many investors are still comfortable maintaining 95-99 percent of their equity holdings in stocks because there are still attractive stocks available. When that is no longer true and investors can’t find stocks to diversify, then it is time to reduce the stock exposure and sell some of the recent winners.
Two Town Crier “50” stocks issued quarterly reports recently.
• Hewlett-Packard Co. (HPQ; $27.30) reported fourth-quarter earnings last week that topped expectations. Sales declined in five of its business units, but the stock rose 8 percent after the report. This is good news for a turnaround company in a tough environment.
HP retook the No. 1 position in the worldwide server market with revenue of $3.4 billion and a 27.6 percent market share, but IBM should regain the honor when December results roll in.
Under CEO Meg Whitman, HP is attempting to shift into cloud computing, kiosk printing and tablet computers instead of other ventures that include computers and printers.
HP’s turnaround is more of a reinvention than a continuous efficiency drive. Whitman’s goal was to cut as many as 34,000 employees, and to date she has laid off 24,000, resulting in $9 billion in free cash flow.
Analysts consider HP stock a neutral, with some believing that the company is underperforming. The median price target is $28, with a high target of $32. HP stock goes for seven times earnings and yields a 2.1 percent dividend.
• Applied Materials Inc. (AMAT; $16.90) posted impressive fourth-quarter earnings at 19 cents, beating numerous analysts’ estimates by a penny, or 5.6 percent. Revenues were also strong, topping forecasts by 16.2 percent. The company reported revenue of $1.99 billion, up 20.8 percent year over year. The gross margin totaled 40 percent.
Applied Materials reports its revenue by segments, with the Silicon Systems Group (SSG), Display, Applied General Services (AGS) and Energy and Environmental Solutions (EES) segments. The largest segment was SSG with 63 percent of revenue, which was down 2.3 percent. AGS was up 8.2 percent with a 27 percent revenue share, and the Display segment rose 1.2 percent with a 75.3 percent year-over-year increase in revenue. The EES segment accounted for 2 percent of total revenue but fell 2.2 percent.
Approximately 70 percent of Applied Materials’ quarterly revenue comes from the Asia/Pacific region.
The PC market remains the problem, and Applied Materials is not the only company affected – Intel Corp. and Microsoft Corp. have experienced segment decreases because of the decline of the desk computer.
Analysts recently upgraded Applied Materials stock to a buy or an outperform. The median target price is $20, with a high of $23. The dividend yield is 2.30 percent.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.