Why JPMorgan Chase, IBM, and UnitedHealth Group Were the Dow's Only Losers Last Week

The Dow Jones Industrials (DJINDICES: ^DJI  ) put up a solid performance last week, climbing more than 2% as the average once again made a push toward what bullish investors hope could be 2014's first all-time record high for the venerable average. Yet holding the Dow back were JPMorgan Chase (NYSE: JPM  ) , IBM (NYSE: IBM  ) , and UnitedHealth Group (NYSE: UNH  ) , which were the only three Dow-component stocks to post losses for the holiday-shortened week.

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All three losing members of the Dow Jones Industrials can blame unfavorable earnings reports for the lion's share of their losses last week. JPMorgan Chase fell just a fraction of a percent, starting off the week on the wrong foot with an earnings report that featured an 18.5% decline in earnings stemming from weakness in its corporate and investment bank unit, with a more-than-20% drop in revenue from its fixed-income operations. The big question facing JPMorgan Chase shareholders is whether the declines in revenue and net income were connected to adverse conditions in various financial markets, or whether they reflect permanent structural changes in the bank's ability to earn profits. JPMorgan Chase has historically succeeded in producing strong internal returns, though, and with share valuations discounting its potential for future growth, JPMorgan Chase stock might well have dropped to interesting levels for bargain-hunting investors.

IBM dropped almost 3% as the tech giant saw overall sales decline by 4%, falling short of what investors had hoped to see from Big Blue for the fifth straight quarter. The destruction in IBM's hardware business has been particularly severe, with a 23% drop in server-related revenue having been partially responsible for IBM's decision to sell off a major portion of its server business to Lenovo. By jettisoning poor-performing businesses, IBM hopes to emphasize higher-margin opportunities in data analytics and cloud computing, making more profit even if revenue continues to lag. Yet with so much intense competition in the cloud and big-data arenas, IBM will have to execute flawlessly if it wants to stay on track to meet its long-term financial goals.

UnitedHealth Group fell 4%, with the health-insurance leader citing higher costs resulting from the implementation of the Affordable Care Act. Although UnitedHealth saw gains in its Medicare Advantage and Medicaid enrollment, commercial-plan numbers dropped by 780,000, the company blamed health-care reform and government spending cuts for a $0.35 per share reduction in its earnings for the quarter. Still, UnitedHealth Group appears to be making the most of the opportunities under Obamacare, especially on the health-care services front. UnitedHealth's Optum segment saw revenue soar almost 30%, with its pharmacy benefits management unit OptumRx seeing even faster volume growth. It's hard to see those results as being gloomy, although it's uncertain whether Obamacare will continue to weigh on UnitedHealth earnings for the rest of 2014 and beyond.

Even when stocks lose ground, it's important to look closely to figure out why. Often, temporary share-price drops are buying opportunities if you have a long-term perspective.

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  • Report this Comment On May 07, 2014, at 6:55 PM, Hansen wrote:

    JPMorgan revenues from bond and securities’ trading are also expected to decline to $4.3 billion in the ongoing quarter, from $5.37 billion posted in the same quarter a year earlier http://goo.gl/AZ581R

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