The Dow Pulls Back, but Intel, Cisco Systems Keep Climbing

The cheap-tech contingent of the Dow Jones Industrials gained ground even on a losing day for the average. Find out why.

May 28, 2014 at 11:00AM
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Coming into Wednesday, the Dow Jones Industrials (DJINDICES:^DJI) had climbed for four straight days, leaving itself just a few dozen points shy of an all-time high. This morning, though, blue-chip index was down 30 points as of 11 a.m. EDT. The broader stock market also reflected investor nervousness, and the drop in bond yields below 2.5% signaled uncertainty about the sustainability of economic growth. Still, despite the Dow's stumble, Intel (NASDAQ:INTC) and Cisco Systems (NASDAQ:CSCO) posted gains Wednesday, perhaps reflecting a change in sentiment about the index's long-struggling lower-priced technology components.

Intc
Source: Intel.

Intel picked up 0.6%as investors continued to evaluate yesterday's announcement that the chip giant would take on Chinese counterpart Rockchip as a partner. Rockchip is a player in the market for Android-based low-end mobile devices such as smartphones and tablets, and that's an area where Intel has identified the potential to expand its market share and make a bigger impression on the mobile market. Intel's rivals were faster to respond to the mobile revolution and have done a good job at capturing the higher end of the market, leaving Intel to consider alternative strategies like this. Still, as wireless network availability and quality improve throughout the emerging-market world, countries such as China will be important for Intel and other chipmakers as a source of growth. Intel's partnership with Rockchip will hopefully open some doors that would otherwise have remained closed to the Dow component.

Csco

Source: Cisco Systems.

Cisco Systems climbed 0.5% this morning in the aftermath of yesterday's analyst upgrade of the networking-equipment giant's stock. There's no doubt that the industries in which Cisco plays an important role have plenty of growth opportunities, and Cisco is working hard to bolster its presence in cloud computing, the Internet of Things, and security offerings with the intention of helping its enterprise customers build full-service solutions to their information technology needs.

Another reason Cisco and Intel might be doing well is that with typical earnings multiples among Dow Jones Industrials components climbing, both companies offer favorable characteristics for value investors. The fact that their raw share prices are among the lowest in the Dow isn't reflective of true value, and as investors become more comfortable with the companies' growth prospects, they're willing to pay more for greater potential earnings down the road. It's too early to tell whether Cisco Systems and Intel will successfully rebound from their long-term slumps, but if they do, it'll be a positive for the Dow Jones Industrials and the market as a whole.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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