Intel Staves Off the Dow's Drop

Smith & Nephew's stock recedes from recent highs as investors continue to circle the possibility of a takeover for this medical-device maker

Jun 24, 2014 at 2:30PM
Daily Fool

After sailing in the green for much of the day and flirting with a new record high, the Dow Jones Industrial Average (DJINDICES:^DJI), has plunged 83 points into the red as of 2:35 p.m. EDT. Investors shrugged off stronger than expected housing sales figures, leaving all but a handful of blue-chip stocks down on the day, Intel (NASDAQ:INTC) has gained 1.3% to become the strongest Dow stock of the day. Meanwhile, medical-device giant Smith & Nephew (NYSE:SNN) today has seen shares back away from its recent run-up. Let's catch up on what you need to know.

Is Intel's gain worth it?
Intel's released little news today to account for its rise, but investors are rallying around the chipmaker stock that already has jumped by more than 17% year to date. The semiconductor's upgraded guidance earlier in June certainly has helped shares as of late, but given the improved projections' reliance on finite upgrades of PCs in the move away from the Windows XP operating system, investors need to keep their eyes on the long-term with this chipmaker.

Intel's PC Group continues to struggle, and the future for this niche in the long run doesn't look bright. While Intel's Data Center Group has performed admirably in its stead as a growth driver -- racking up more than 10% year-over-year revenue growth in the company's most recent quarter -- the PC division makes up nearly two-thirds of Intel's overall revenue. Finding new markets to tap into is Intel's best hope to spark a long-term trend higher, but as fellow Fool Ashraf Eassa notes, the company is still lagging behind the leaders in the chip market. Intel's gains this year have been promising, and the company is still valued cheaper than rivals such as Qualcomm and AMD on a price-to-earnings basis, but Intel has plenty of work to do to shore up its future. Long-term investors should stay cautious with this pick's run-up in 2014.

Around the market today, the health-care sector has been home to one of the day's biggest losers among large-cap stocks so far. Medical-device leader and takeover speculation target Smith & Nephew (NYSE:SNN) has dropped by more than 2.5% as investors back down from the stock's recent spike. Over the past year, Smith & Nephew's stock has shot up more than 50% -- far past top rivals in the orthopedics sector.

SNN Chart

SNN data by YCharts.

Today's drop doesn't mean that Smith & Nephew is falling off of the merger and acquisition bandwagon, though: While orthopedics giant Stryker (NYSE:SYK) will have to wait some time before approaching Smith & Nephew about a potential deal, don't expect the company to sit quietly while rival device makers such as Medtronic and Zimmer Holdings have beefed up through market-shaking acquisitions.

Stryker has maintained respectable organic growth lately, with nearly 6% sales growth year over year in its reconstructive division last quarter and 7% neurotech and spine sales growth. The company's recent acquisitions, while smaller than Medtronic's blockbuster buy of Covidien or Zimmer's acquisition of Biomet, have been focused on the future, with MAKO Surgical adding the innovative edge of robotics to Stryker's portfolio. However, Zimmer's purchase particularly has Stryker trailing in the race to industry consolidation. Making a deal with Smith & Nephew would beef up Stryker's revenue and cement its place among the top orthopedics leaders while also giving it increased exposure to foreign markets.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Covidien and Intel. The Motley Fool owns shares of Intel, Medtronic, Qualcomm, and Zimmer Holdings. 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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