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Why Hewlett-Packard Could Miss the Dow's Next Bull Market

By Dan Caplinger - Apr 2, 2013 at 9:00PM

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Goldman Sachs thinks that the company isn't out of the woods yet.

As much as everyone thought that April showers might make the stock market swoon after an impressive first-quarter performance, it seems like May flowers are a month early. Thanks in part to increasing sentiment that U.S. stocks have a safety advantage over companies in other parts of the world, both the Dow Jones Industrials (^DJI -3.57%) and the S&P 500 (^GSPC -4.04%) climbed to new record highs today. Even as Federal Reserve policymakers continue to walk the line between encouraging economic growth and creating another asset bubble, investors see improving economic data as evidence that the Fed's policies are doing what they were designed to do. The Dow finished up 89 points to 14,662, while the S&P rose 8 points to 1,570.

But Hewlett-Packard (HPQ -6.99%) was a big loser on the day, falling more than 5% after Goldman Sachs downgraded the stock. HP has been going through massive changes, and investors have been impatient to see results. Yet even as CEO Meg Whitman has tried to get HP back on the right track, Goldman's analysis concluded that changes would be slow in coming, making the recent bounce in HP's stock price premature. One could argue, however, that the recent rally in HP's shares was due more to an overreaction in 2012 to its slow turnaround. In the end, what will decide matters for long-term investors is whether Whitman's strategies can successfully find new profit centers for HP. If they can, then Goldman's short-term call will prove irrelevant. If not, then HP could easily end up missing the next bull market for the Dow just as much as it missed out on last year's stock market gains.

Boeing (BA -4.95%) also lagged behind the Dow, falling 1.4% on reports that International Airlines Group, which runs British Airways, will order A350 aircraft from Boeing rival Airbus. Boeing has hoped that it would get the airline to buy its next-generation 777X aircraft. It doesn't appear that the decision is motivated by Boeing's issues with its 787 Dreamliner, but the episode has nevertheless been a black mark on Boeing's reputation and could have impacts on orders down the road.

Finally, outside the Dow, Nordic American Tankers (NAT 0.00%) plunged 11% after pricing a secondary offering of 9.75 million shares at $9.60 per share, well below the stock's closing price yesterday above $11. Secondary offerings are often dilutive, but the timing of the decline is unfortunate given the recent uptick in the shipping sector in the past month.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,490.07 (-3.57%) $-1,164.52
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,923.68 (-4.04%) $-165.17
The Boeing Company Stock Quote
The Boeing Company
BA
$125.52 (-4.95%) $-6.53
HP Inc. Stock Quote
HP Inc.
HPQ
$36.85 (-6.99%) $-2.77
Nordic American Tankers Limited Stock Quote
Nordic American Tankers Limited
NAT
$2.62 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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