Please ensure Javascript is enabled for purposes of website accessibility

IBM and GE Mask the Dow's Strength

By Travis Hoium - Apr 19, 2013 at 3:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

IBM's high stock price dampens a good day on Wall Street.

All but six of the 30 Dow Jones Industrial Average (^DJI 1.76%) components are higher today, but a quirk in the way the index is calculated has it slightly in the red. The Dow is a price-weighted index, which means that expensive stocks like IBM (IBM 1.74%) have an especially large impact on the index as a whole, so the stock's 8.1% loss today has cost the Dow more than 100 points. A broader look at stocks via the S&P 500 (^GSPC 2.47%) shows the market making significant gains today: The index is up 0.75% near the end of trading.

IBM's huge drop was driven by a disappointing first-quarter earnings report. Revenue fell 5% to $23.4 billion, and non-GAAP net earnings per share rose 8% to $3 per share. This fell short of expectations, but IBM said some large orders didn't close during the quarter, affecting the timing of recognized revenue. For the full year, the company expects non-GAAP EPS of at least $16.70, which is just below the current estimate of $16.77. I don't think this is so bad as investors think, but there has been a sell-off in tech any time a company reports disappointing numbers, and today is no exception. 

General Electric (GE 2.27%) is faring better than IBM, but it's nonetheless down a substantial 4% after releasing its own first-quarter earnings. Q1 revenue was flat, and a 16% jump in earnings to $3.53 billion, or $0.34 per share, wasn't enough to satisfy investors. Industrial revenue fell 5.7%, and investors are focusing on signs of a weak economy that showed in GE's report. Still, GE is trading at just 11 times 2013 estimates, and with the large pile of cash it made with the sale of NBCUniversal, shareholders should feel comfortable about the future of GE.

The surprise winner of the day is Microsoft (MSFT 2.76%), which is up 3.4%. The company said revenue rose 17.8% in the quarter to $20.5 billion, while net income jumped 19% to $6.06 billion, or $0.72 per share. Both numbers beat estimates, and the company appears to be surviving the decline of the PC much better than expected. In fact, the Windows division saw revenue increase 23% thanks to upgrades to Windows 8, so Microsoft is beginning to transition consumers to its new products. The downfall of Microsoft has been called prematurely, and I think this stock is a great buy because of its profitable enterprise businesses and upside in mobile.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,212.96 (1.76%) $575.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,158.24 (2.47%) $100.40
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$139.27 (1.74%) $2.38
General Electric Company Stock Quote
General Electric Company
GE
$78.76 (2.27%) $1.75
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$273.24 (2.76%) $7.34

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.