Portfolio Review

9/6/2010


Once again, H-P outbids Dell for 3PAR

Hewlett-Packard ($38; HPQ) has pulled ahead of Dell ($12; DELL) in the bidding war for data-storage company 3PAR ($32; PAR). 3PAR called H-P’s $2 billion offer superior to Dell’s latest bid. Dell opened the bidding with $1.15 billion on Aug. 16, and despite widespread acknowledgement that the current price is already expensive, many market watchers expect the suitors to continue their pursuit. 3PAR specializes in advanced data storage, a critical component of cloud computing, which is gaining acceptance by corporations.

3PAR was just one deal pursued by H-P in yet another busy week for the tech giant. For an undisclosed sum, H-P bought privately held Stratavia to augment its database and cloud-computing businesses. H-P also won a five-year contract worth up to $800 million to supply the U.S. Air Force with personal computers and other equipment. In other news, H-P boosted its share-repurchase program by $10 billion and pledged to buy back at least $3 billion in the October quarter, which would lower the share count by more than 3% at current prices.

In related news, industry researcher Gartner ($29; IT) said global server sales rose 14% to $11.1 billion in the most recent quarter. H-P generated sales of $3.54 billion, good for first place in the world with a 32% share, up from 29% a year ago. IBM ($123; IBM) ranked second, though its share slipped to 28% from 33%. H-P is a Buy and Long-Term Buy. IBM is a Focus List Buy and a Long-Term Buy. Dell is rated B (average).

Intel warns on sales, stock rises

Intel ($18; INTC) warned that September-quarter revenue could fall short of the company’s earlier guidance. The midpoint of Intel’s most recent forecast is $11.0 billion, versus $11.6 billion earlier. Growth in the consumer market for personal computers remains anemic, though Intel says it sees strong corporate demand. The shares rose on the announcement, suggesting investors feared even worse news.

One of Intel’s biggest challenges has been gaining a foothold in the mobile-device market. With that in mind, Intel agreed to pay $1.4 billion for the wireless unit of Infineon Technologies ($2; IFX). The unit produces semiconductors that connect Apple’s ($243; AAPL) iPhone to networks, as well as low-end chips used in Nokia ($9; NOK) and Samsung devices. This deal comes one week after Intel said it would buy McAfee ($47; MFE) for $7.68 billion in an effort to break into the nascent market for mobile-device security. Intel is a Focus List Buy and a Long-Term Buy. Apple is a Long-Term Buy.

RIM caves, gives India access

Research In Motion ($43; RIMM) has given India access to e-mail and text messages sent from its BlackBerry devices, hoping to avoid an outright ban in the country. Government officials said they also want RIM to keep a data center in India, which will cost the company tens of millions of dollars. India accounts for just 2% of RIM’s 46 million customers but ranks as the second-largest cell-phone market in the world. After RIM’s capitulation, India made similar demands of several Internet companies, including Google ($450; GOOG). A handful of countries have expressed concerns about monitoring terrorist plots discussed via the devices. RIM still faces an Oct. 11 deadline set by United Arab Emirates to address that country’s security concerns. RIM is a Buy and a Long-Term Buy. Google is rated B (average).

Apple shows off new toys

Apple ($243; AAPL) CEO Steve Jobs unveiled upgrades for several of the company’s gadgets. First, Apple has revamped its line of iPod media devices, some now loaded with video-chatting software and featuring cameras for both snapshots and video. Apple also updated its iTunes software with Ping, a social network that lets users track their friends’ music tastes. The newest version of Apple TV, a box roughly double the size of an iPhone, will play rented high-definition movies and TV shows. Finally, Apple said that iPhone users will receive new software that lets them upload HD video over wireless networks. Apple is a Long-Term Buy.

Corporate roundup

GameStop ($18; GME) faces its latest threat, as a big-box retailer tries to take a bite out of its profitable used video-game business (29% of revenue and 49% of gross profit in the six months ended July). Best Buy ($31; BBY) said it will expand a program that lets shoppers trade in video games for gift cards. Target ($51; TGT) also announced plans for its own trade-in program for electronics. GameStop is a Buy. Best Buy and Target are rated A (above average).


Pay-TV has been one of few areas of strength in the U.S. economy this year. Monthly cable bills rose an average of 8% to $123 in the June quarter, according to researcher SNL Kagan. In comparison, consumer prices advanced 1% in the 12 months ended June, according to the U.S. Labor Department. That strength bodes well for Focus List selections Comcast ($17; CMCSa) and DirecTV ($38; DTV).


A vice chairman at General Electric ($14; GE) said the conglomerate could deploy up to $30 billion on acquisitions in the next two to three years, adding that the spending would not preclude dividend growth and share buybacks. General Electric is rated B (average).


Boeing ($61; BA) once again postponed its long-awaited 787 Dreamliner jet, this time citing engine-delivery problems. Boeing expects to deliver the jet in the middle of the March 2011 quarter. Boeing is rated B (average).


Johnson & Johnson ($57; JNJ) recalled two hip-replacement systems after learning that a surprisingly high number of patients required a second replacement procedure or revision. J&J is rated B (average).


Altria Group ($22; MO) raised its quarterly dividend 9% to $0.38 per share, payable Oct. 12, following a 3% hike in February. Altria Group is rated B (average).

Performance update

Because of our emphasis on diversified portfolios and high-quality stocks, Dow Theory Forecasts seldom ranks among the very best newsletter performers for a single year. We attempt to limit our risk, which keeps us out of the most speculative stocks. But our disciplined methodology has consistently produced market-beating results.

In fact, according to the independent Hulbert Financial Digest, the Forecasts ranks among a select group of newsletters that outperformed the market for the six months, five years, 10 years, and 15 years ended June 30. For all those periods, the Forecasts also outperformed on a risk-adjusted basis.

For the 15 years ended June, the Forecasts returned 204.3%, versus 129.7% for the S&P 500 Index, according to Hulbert. All three of our recommended stock portfolios and both of our fund portfolios have outperformed the market since inception, according to Hulbert.

  RANK CHANGES

No changes were made this week in Dow Theory Forecasts.


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