Wow! What a quarter. All three major indexes came out swinging and had impressive gains marked by surprisingly little volatility. Given the seemingly daily questions regarding Greece defaulting (technically yes), the domestic economy finally recovering (a strong maybe), and Linsanity's sustainability (resoundingly on hold), what we've seen is astonishing.
With that in mind, let's take a closer look at how the major indexes closed the first quarter and then take a closer look at three Dow components whose underwater performance over the past several months muted the index's broader returns.
Gain / Loss
Gain / Loss %
|Dow Jones Industrial Average (INDEX: ^DJI )||51.99||0.40%||13,197.81|
|Nasdaq (INDEX: ^IXIC )||3.80||0.12%||3,099.16|
Source: Yahoo! Finance.
These are historical returns. The Nasdaq saw its best performance since 1991. That's right; not even the go-go dot-com boom of the late '90s that propelled the index above 4,500 saw a three-month stretch that topped the opening quarter of 2012. Not to be left out of the record books, the Dow and S&P 500 both notched their largest percentage gains since 1998 and their largest first-quarter points gains since, well, ever. The average Dow component turned in a gain of 11.2%, but several companies fared significantly worse.
So which companies were responsible for dragging down the Dow in 2012? It's actually a fairly diverse group that includes a telecom, an embattled tech legend, and a fast-food icon. Let's tackle the worst performer first.
Hewlett-Packard (NYSE: HPQ ) has been in turmoil ever since the Mark Hurd scandal broke. Board dysfunction, the Autonomy purchase debacle, the pump-fake sale of its PC division, and the failed 11-month tenure of Leo Apotheker as CEO -- including his bizarre TouchPad decisions -- all combined for a disastrous stock performance. Not so shockingly, HP continued last year's 38% decline with an additional 7% shaved off in 2012. Things may be stabilizing for the company in the interim, but investors need to get a better sense of Meg Whitman's stewardship. She recently revealed a reorganization plan that has the printer and PC lines merging to cut costs and promote innovation. HP needs to show positive momentum soon, or it will find itself increasingly marginalized in today's rapidly changing environment.
Verizon (NYSE: VZ ) has struggled this year from a stock-performance standpoint; subsidizing iPhone sales has compressed margins. But the company has a lot of things going for it. It dodged a bullet when AT&T wasn't allowed to merge with T-Mobile and has also been aggressively purchasing wireless spectrum. Free cash flow growth has been challenging, but Verizon is certainly faring better than its peers. But it will need to better leverage its strong market position and potentially wrestle back some control from handset makers if it really wants to see shares soar going forward.
Fast-food purveyor McDonald's (NYSE: MCD ) rounds out the top three with a minor 2.2% decrease in shares over the past three months. The company's 31% gain led all Dow components in 2011, so it isn't surprising to see shares take a breather in 2012 after that tremendous run. European sales disappointed for February, arresting the stock's momentum, and a CEO change could mean a shifting in fortunes following the tremendous stewardship of Jim Skinner. However, newcomer Don Thompson was responsible for several winning initiatives, including the margin-expanding McCafe line, so McDonald's does appear that it will be in good hands. While the Golden Arches seems to have lost its golden touch this year, McDonald's is still a strong business with a great brand, and investors shouldn't write it off just because of this latest downturn.
A better approach
McDonald's may have hit a slight bump in Europe, but it still has tremendous growth potential, especially in China. The Motley Fool has created a special free report about three domestic stocks not only winning in the U.S., but also poised to conquer global markets. To uncover these stocks today, take a look at our special free report, "3 American Companies Set to Dominate the World." Don't miss out on this limited-time offer and your opportunity to discover these world beating businesses before the market does. Access your report -- it's totally free.