The weather the first week of April wasn’t all sunshine, but for the past 50 years on Wall Street, April is known as the best-performing month. With the Dow Jones industrial average down 0.7 percent in the first three months of 2014, investors are hoping the fourth month lives up to its reputation.
Brushing aside widespread concerns about lower corporate profits and high stock valuations, the Dow Jones transportation average and the S&P 500 began April at new all-time highs. Even the Dow industrials rallied within a few points of the Dec. 31 all-time high of 16,576.66. Investors should consider anything above those numbers another bullish trend.
Investors should keep in mind that old Wall Street adage, “Sell in May and go away.” May through October is the worst six-month period for stocks. My advice is to stay alert over the next six months, because near-term volatility would not be surprising, especially if the Federal Reserve’s free-money policy comes to an abrupt end.
Two Town Crier “50” companies made headlines last week.
• Google Inc. (GOOG; $544.00/GOOGL; $545.62) shares doubled last week on a 2-for-1 stock split. For every Class A share (new sticker symbol: GOOGL), investors were slated to receive one Class C share (symbol: GOOG), which lacks voting rights. The S&P 500 will include both share classes, while the Nasdaq will keep both share classes for now but plans to drop the Class A shares in June.
Don’t think that the move was designed to lower the price of shares and lure more investors – the move was made to give Google co-founders Larry Page and Sergey Brin greater control of the company. Owners of the existing A shares will now have C shares that have no voting rights at Google’s annual shareholders meeting.
By introducing nonvoting shares, Page and Brin will be able to issue stock to compensate workers or make acquisitions without diluting their voting shares. It will also provide a means to prevent activists like Carl Icahn or Mark Zuckerberg from interfering with Google’s plans.
The upgrade and downgrade history of Google stock has been a buy for years, but this new move will keep investors looking for a reaction. Price targets will be listed as “N/A” until the market reacts to the new issues.
• Hewlett-Packard Co. (HPQ; $32.59) is enjoying a new optimism as the company and its stock begin to turn around.
The Palo Alto-based company provides computers, printers, technologies, software and services to individual consumers and small and medium-sized companies. The business comprises the Personal Systems, Enterprise and Financial Services groups.
The company in 2013 posted a decrease in revenue in all business segments, notably a 10 percent decline in Personal Systems and an 8 percent drop in the Enterprise Group.
From a share-price view, there has been a 43 percent increase in one year to the current $33, on the expectation that the company’s future performance would warrant the increase.
HP generates a healthy cash flow, but there is concern with the shrinking margins in the PC division and other hardware sales.
CEO Meg Whitman continues trying to turn the company around. Hewlett-Packard has enormous strengths and a respected worldwide brand. The market looks for steady improvements in sales and net income. At 10 times earnings, the stock is cheap and could reward patient money.
Numerous brokerage houses have upgraded Hewlett-Packard stock to overweight or buy. The mean target price is $34, with a high of $40.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks.