By most accounts, last week was a stellar week for the markets. Only seven of the 30 stocks on the Dow Jones Industrial Average
Three factors contributed to this performance. On Wednesday, the German constitutional court upheld the European Stability Mechanism, essentially the European equivalent of our own Troubled Asset Relief Program. The following day, the Dutch people voted to retain the pro-eurozone incumbent party, rejecting fringe groups calling for an end to the continent's ongoing bailouts. And last, but certainly not least, on Thursday, the U.S. Federal Reserve announced its decision to initiate another round of quantitative easing in its fight against unemployment.
Yet, as I noted at the outset, it was a stellar week only by most accounts. By some, in other words, it was not. What follows, in turn, is a look at the two Dow stocks that lost the most ground in an otherwise upbeat week.
For a second week in a row, Intel was among the Dow's two worst performing stocks.
The impetus for the ongoing decline appears to be the same as it was last week. In a recent press release, the chipmaker downgraded its revenue forecasts for the current quarter, noting that:
[T]hird-quarter revenue is expected to be below the company's previous outlook as a result of weaker than expected demand in a challenging macroeconomic environment. The company now expects third-quarter revenue to be $13.2 billion, plus or minus $300 million, compared to the previous expectation of $13.8 billion to $14.8 billion.
In the wake of the news, other technology companies, like Cisco Systems (Nasdaq: CSCO,) followed it down.
Ironically, given the market's reaction, the move was not unanticipated by analysts, including by our own Evan Nui, who had previously penned an article titled, "Is Intel About to Cut Its Guidance?" Analysts have been concerned with two things in this regard. First, Intel gets 12% of its revenues from Europe. And, second, many believe the company is overly reliant on the floundering personal computer market, from which it derives two-thirds of its revenue.
Despite these struggles, Intel has one big attraction for investors: it pays a great dividend. As noted by my colleague Ilan Moscovitz, who recently named the chipmaker a "dividend dynamo," the company has a market-beating dividend yield of 3.9%, sports a modest payout ratio of 36%, has an insignificant debt-to-equity ratio of 15%, and has grown its dividend at an annualized rate of 15% over the last five years.
The next worst performing Dow stock is the hallowed aerospace company Boeing. Unlike Intel, however, there are fewer tangible explanations for the aircraft manufacturer's recent decline. Analysts have, therefore, been left to speculate as to its causes.
In the first case, the defense industry, in general, was down last week, with Raytheon
Investors may be reacting to news out of Europe that EADS, the aeronautics company behind Airbus, the world's best-selling line of passenger planes, is planning a merger with BAE Systems, one of the world's biggest defense contractors. The combined company could become a tough competitor for defense contracts.
In the second case, anything related to the defense industry, from which Boeing derives a significant portion of revenue, is susceptible to political risk, particularly in an election year, where the budget is a central issue. The biggest concern in this regard is the fiscal cliff, a series of tax increases and spending cuts set to take effect early next year in the absence of Congressional action. Needless to say, if policymakers don't get this sorted out, defense contractors will be some of the first to feel the pinch, as the Department of Defense's budget will be reduced by 10%.
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