The Technology Stock You Should Stay Away From
By Sasha Cekerevac for Investment Contrarians |
While many technology stocks for the past few years have done extremely well, the old-fashioned personal computer (PC) makers have struggled. As the marketplace has shifted—and corporate earnings with it—away from the traditional PC to tablets and smartphones, the old technology stocks that we used to remember fondly have been falling by the wayside.
Hewlett-Packard Company (NYSE/HPQ) is the latest in a line of PC makers to have struggled in growing corporate earnings. The latest news from the company is that its CEO, Margaret Whitman, met with analysts and gave them a disappointing forecast for the company.
While Whitman did state that she has been taking some initiatives to turn the company around, it appears Wall Street was not impressed, as shares plummeted. Two aspects of the company’s new focus will be a narrower product line and an increased focus on corporate customers. Whitman also stated that next year’s corporate earnings will be below current analyst estimates.
Since 2009, the shares have lost over $90.0 billion in market value, a stunning decrease for any technology stocks. She stated that the company was not properly aligned with the current marketplace, an apt observation. With its current focus on old-fashioned markets, such as the PC area, and not enough innovation in new areas, Hewlett-Packard (HP) has not been able to compete with the newer, younger, nimbler technology stocks of today.
While I certainly don’t think the PC market will go away anytime soon, it should be only one segment of a company’s product lineup. Technology stocks in this day and age need to have products across the entire scope of the technology market sector, as consumer tastes are increasingly becoming differentiated.
One interesting fact Whitman stated was that innovation was alive at HP. Could this mean some new products that could help build inroads into the marketplace and drive corporate earnings? At this point, it’s extremely hard to tell. Every CEO is optimistic about their company—they have to be, naturally—but the proof is in the pudding, as they say. Until I see these new innovative products and an increase in corporate earnings, I will err on the side of history and, in this firm’s case, history tells us to be skeptical of such claims.
Chart courtesy of www.StockCharts.com
One of the most common mistakes investors make is to try to pick a bottom in the stock price of technology stocks. When it comes to technology stocks, this can be increasingly appealing, as a new product can quickly increase corporate earnings and turn the company around. While I agree that’s possible, we have yet to see any such innovative measures from HP.
As one can see from the chart, as corporate earnings have eroded for HP, stemming from a loss in market share to other technology stocks, the share price has continued to decline. While some active traders might consider what just occurred as a capitulation day, I would caution long-term investors to stay away from the stock. We don’t know if and when any new innovative products will come to fruition; unless you’re willing to be an active trader, HP is a gamble that you might not want to take.