Why These 2 Dow Stocks Got Crushed This Week

It was a relatively flat week for the markets overall, with all of the indices finishing the week up but none more than half of a percentage point. That, however, didn't stop the S&P 500 from closing Friday at its highest point since June 2008. Despite the great year so far for the markets, many investors will be surprised to know that the S&P 500 is almost as cheap as it has ever been compared to bond yields.

Index

Change

Ending Value

Dow Jones Industrial Average (INDEX: ^DJI  ) +33.08 [+0.26%] 12,983
Nasdaq (INDEX: ^IXIC  ) +11.97 [+0.41%] 2,964
S&P 500 (INDEX: ^GSPC  ) +4.51 [+0.33] 1,366

The losers
Although it was a flat week for the major indices, there were two Dow stocks in particular that posted big declines. The biggest Dow loser was Hewlett-Packard (NYSE: HPQ  ) , down 10% on the week. The much-maligned technology company posted disappointing earnings after hours Wednesday. HP reported net income of $1.47 billion in its fiscal first quarter, down 44% from a year earlier, but actually came in above analyst expectations when one-time items are stripped out. Revenue was disappointing, down 7% from last year, half of which the company blamed on flooding in Thailand. New CEO Meg Whitman certainly has her work cut out for her, and she continues to caution that the rebuilding effort will take time.

The Dow's second biggest loser was Wal-Mart (NYSE: WMT  ) , pushed down 5.9% on the week, also on disappointing earnings. The world's largest retailer reported earnings of $1.50 a share, down 15% from $1.70 a share a year earlier. Investors were most concerned about price cuts that helped lower fourth-quarter gross margins by 0.4%. That might not sound huge, but with Wal-Mart's massive scale it means that these price cuts decreased the company's margin by $100 million. Same-store sales increased 1.5%, slightly below the number analysts anticipated. Wal-Mart's stock swung to a loss for the year to date as well, down 1.62% so far in 2012. Looking into the future, Wal-Mart could continue to be hurt by high oil prices, which are now above $109 a barrel.

Outside the Dow, retailer Gap also saw disappointing earnings that pushed its stock down more than 9% on the week. Net income fell 40% and the company's margins continued to contract. Despite the weak earnings, Gap's board approved $1 billion in additional share repurchases and increased the annual dividend by 11%. The company has overextended itself in many areas and has announced plans to close more than 20% of its North American stores over the next two years.

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Brendan Byrnes owns no shares of any company mentioned above. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


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