The market has traded on both sides of the ledger today as the bears were able to push near-term support while the bulls have battled back as we head into the second half of trading. It seems Wall Street is having a hard time deciding on whether to stay long or short over the weekend which has caused some of the volatility although the indexes have remained in a somewhat tight range. We were expecting a little more pressure to the downside, and maybe that comes in the final hour, but as we have seen for much of 2011, option expiration day has been rather uneventful.
One company feeling the heat is Hewlett-Packard (HPQ, $23.53, down $5.98) which is down 20% after announcing earnings last night after the bell. The company reported a profit of $1.93 billion, or $0.93 a share, versus $1.77 billion, or $0.75 a share, a year earlier. Its adjusted earnings were $1.10 per share, a penny above analyst expectations.
HP’s revenue came in at $31.2 billion, up from $30.7 billion which matched expectations. This was the good news.
Looking ahead, the company expects to earn $1.12- $1.16 a share, which was well below Wall Street’s forecast for $1.32 a share. HP also expects lower revenue of $32.1-$32.5 billion, which was about $2 billion shy of analysts’ estimates of $34 billion. This was the bad news.
The shocker came when the company announced plans to spin off its PC business, which also makes HP tablets and phones, in order to focus exclusively on software. The company is dropping all webOS devices, including the TouchPad, which was launched just under 2 months ago after failing to compete with Apple’s iOS system.
The transformation really isn’t a surprise though because rumors have been circulating since their CEO took office that he would try to expand the profitability of its software division while shedding the hardware business.
There have been a ton of analysts recommending this stock, especially when shares dipped below $40, but all of them are jumping ship today as there have been numerous downgrades on the stock.
HP’s new direction will likely take a year or two and we think the stock is dead money, or a losing bet, until things turnaround.
As far as the market, the Dow is down 45 points to 10,945while the S&P 500 is lower by 2 points to 1,138. The Nasdaq is up a deuce to 2,382.
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We will be coving a couple of option strategies over the next month which are awesome in this type of environment and instantly bring cash into your account. Yes, these strategies will be risky, but they aren’t if you know what you are doing.
The Weekly Wrap is a covered call newsletter which aims at making 8%-10% a month. Our 2011 winners include: DNDN +9%, PCX +13%, SGEN +26%, TIVO +34%, REDF +11%, PCX +7%, against no losers, yet. Folks, this is one of the best times ever to go bottom fishing on stocks you like and we will show you how to make income while owning them.
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