Earnings season kicks off in about an hour when Alcoa reports second-quarter results, and Wall Street may finally turn its focus back to business fundamentals. Speculation about the Federal Reserve, Portugal, China, and other macroeconomic issues has driven markets over the past few weeks, but earnings are really the long-term driver of stocks, and today the rubber hits the road. Without much news to inform trading, investors have bid up the Dow Jones Industrial Average (^DJI -0.11%) by 0.61% as of 3:25 p.m. EDT, while the broader S&P 500 (^GSPC 0.02%) is up 0.49%.
Two stocks not following the market higher are Hewlett-Packard (HPQ 1.55%) and Intel (INTC 0.64%), which are off 1.7% and 4%, respectively. Analysts at Evercore, Citigroup, and Bernstein Research all released negative reports on Intel before trading today, questioning the company's ability to gain share in mobile or maintain margins.
Intel is releasing a new generation of Atom chips and a new line called Haswell to adapt to more mobile computing, and the concern is that this will only cannibalize PC chip sales. PCs have long been Intel's bread and butter, but with the advent of the smartphone and the tablet, PC sales have fallen by double-digit percentages in recent quarters and may be headed for a 10%-plus decline in 2013, hence Intel's push into mobile. But that comes with greater competition, lower sale prices, and lower margins, which may mean lower profit for the company.
The same structural problems that plague Intel are weighing on HP as well. HP can be volatile, and even the reminder of the company's challenges can send shares lower, which is what happened when Intel dropped today. If things are bad at Intel, they're likely worse at HP, where every operating segment saw a revenue decline in the first quarter and the PC is an even more vital part of operations.
Of these two, I think Intel has the least to worry about. It recently won the Samsung Galaxy Tab 3 chip battle, and its 14 nanometer chips due out next year will likely keep the mobile momentum going. Revenue may not grow this year, but investors can sleep well knowing they're getting a 3.7% dividend from the stock.
HP, on the other hand, has little presence in mobile and will have a harder time gaining share. After taking massive losses last year, the stock still pays a 2.6% dividend, but there are still many challenges in turning around the PC business, printing, and software. There's certainly upside potential, but Intel is the safer bet despite the negative sentiment today.
