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carly fiorina photoCarly Fiorina is currently a candidate for President of the United States of America. She is campaigning for the nomination of the Republican Party to run in the general election of 2016. According to her, one of her strengths is her business background. Most notable she speaks of her background as the first CEO of a DOW30 company: Hewlett-Packard [stckqut]HPQ[/stckqut].

This site is purposefully non-political. While I tend to be a conservative and have voted for a Republican candidate more times than not, I do not want this site to reflect my personal political thoughts. I will occasionally point out a law or regulation that is tough on investors or the business community, but success at investing must be an apolitical activity. In fact, I have written that investors should probably ignore politics and political turmoil when investing.

I am writing this article simply to analyze the success of Ms. Fiorina or the lack thereof. I am fairly hard on companies and their management. It takes a lot to make my Watch List, and most companies cannot achieve that level of performance. I doubt that HP would have made that list while Ms. Fiorina was CEO, and it certainly cannot make that list today.

donald trump photoIronically, her record at HP is one of the criticisms of Ms. Fiorina. Donald Trump is famous for criticizing her as a failed CEO, and he often cites the writings of Jeffrey Sonnenfeld. It is virtually impossible to compare the success of Donald Trump as CEO with Ms. Fiorina as CEO since Mr. Trump’s businesses are not public entities while most of Ms. Fiorina’s career has been with public entities. It is possible to dig into Ms. Fiorina and see just how lousy she was as the leader of a massive corporation.

I will point out that there is an incredibly different scale in Ms. Fiorina’s career with Mr. Trump’s career. It is unlikely that in 1999-2005 (the time when Ms. Fiorina was CEO of HP) that Mr. Trump’s combined businesses would have cracked the Fortune 500 in revenue. In comparison, Ms. Fiorina was in the DOW30, which the Dow Jones company creates to give the best representation of the overall health of the stock market. In other words, Ms. Fiorina was in the big leagues while Mr. Trump was making a lot of personal money in the minor leagues.

So how did Carly Fiorina do as CEO?

It is probably best to take a look at her critics. Mr. Trump is fairly light on details, but he cites Mr. Sonnenfeld, so let’s look at his criticisms as revealed in Politico.

  • In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.
  • During those years, stocks in companies like Apple and Dell rose.
  • Google [stckqut]GOOG[/stckqut] went public, and Facebook [stckqut]FB[/stckqut] was launched.
  • The S&P 500 yardstick on major U.S. firms showed only a 7 percent drop.
  • At a time that devices had become a low margin commodity business, Fiorina bought for $25 billion the dying Compaq computer company, which was composed of other failed businesses.
  • The only stock pop under Fiorina’s reign was the 7 percent jump the moment she was fired following a unanimous board vote.
  • Fiorina countered that she wasn’t a failure because she doubled revenues. That’s an empty measurement.
  • She hasn’t had another CEO position since her time at HP

Let’s look at each of these accusations.

In the five years that Fiorina was at Hewlett-Packard, the company lost over half its value.

This is true and is a great reason that it was probably foolish to purchase the stock of HP in that time period. However, to accurately gauge the failure we must look at the reasonable peer group of HP. I contend that the reasonable peer group was Dell, Apple [stckqut]AAPL[/stckqut], Oracle [stckqut]ORCL[/stckqut], IBM [stckqut]IBM[/stckqut], Cisco [stckqut]CSCO[/stckqut], and EMC [stckqut]EMC[/stckqut]. I choose this group for several reasons. They are all quite large and, for the most part, they got their revenue at that time from either selling personal computers or from selling large and complicated systems to the IT departments of major companies.

Unfortunately, Google Finance only shows a weekly price for that long ago. While Ms. Fiorina joined HP on July 19, 1999, and left on February 9, 2005, those dates are not exactly available on Google Finance. The exact dates may be available on other sources but using Google Finance makes it easy for my readers to play with the dates as well as throw in other comparison companies.

HP comparison chart

 

If we look at the above chart it goes from July 9, 1999, to February 18, 2005. This is a very close approximation to Ms. Fiorina’s joining and departure dates. A quick appraisal shows that only Apple and Dell increased in value during this time frame. The other companies decreased in stock value, and most of them decreased in the same approximate range as HP.

In fact, you can see that several of these companies, including HP, had peak prices shortly after Ms. Fiorina joined HP. Many of the companies had significantly bigger drops than HP during the period. If we move the start date to March 2, 2000, you will see that most of these large enterprise-IT sellers had much larger drops in stock value than HP. Obviously, this was a major challenging time for companies that sold in the same market as HP. Even Apple dropped over 70% by the end of 2000. Remember, Apple at this time was not the amazing gadget, phone and entertainment content seller of today, but instead a computer company that was quite reliant on selling personal computers.Read More →

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Editors Note: An investor needs to be very concerned about having too many stocks that are influenced by the same market factors. Understanding these relationships can be confusing at times. This guest article by Troy does an excellent job of helping to explain this concept.

Guest Post by Troy Huot

Why do stocks trade up? Why do stocks trade down? When you invest in a stock you need to comprehend what jolts the equity you’ve investing in either higher or lower. One contributing factor may have nothing to do with the stock you own at all.

Arbitrage is not usually the reason your beloved stock gets hammered on any given day. The old adage, “everything happens for a reason” definitely holds true in relation to the stock market. Stocks trade in unison and typically stocks trade in unison by sector.

Stocks can be divided up into many sectors based on the type of business the company is involved in. Some sectors include, but are not limited to: energy, financial, health care, industrials, retail and technology. It is imperative that you know what sector your stock belongs to as the stock can increase or decrease in value based on competitors in their sector.

For example, Apple is in the technology sector and its direct competitors are Dell [stckqut]DELL[/stckqut] and Hewlett-Packard [stckqut]HPQ[/stckqut]. News could come out that Apple Macbook Pro computer sales are going to be lower than expected this quarter. As a result, the stock could sell off drastically. You could trade the news on Apple [stckqut]AAPL[/stckqut] knowing there is also a possibility that both Dell and Hewlett-Packard could decrease in price too. Why? Because investors will insinuate that the decrease in sales for Apple is a foreshadow for dismal computer sales for both Dell and Hewlett-Packard. This has a direct impact on all the companies which leads to a rainfall effect that could send all three stocks trading lower.

There are also many other indirect stock market links that investor’s must pay attention to. Apple and Hewlett-Packard may be directly connected but companies like Apple and Omnivision Technologies [stckqut]OVTI[/stckqut] have an indirect relationship. Omnivision Technologies creates and manufactures a semiconductor image sensor for the camera used in Apple iPhones: do you see the relationship here? It could come to light that iPhone sales have increased dramatically from first quarter to second quarter. This could lead to Apple’s share increasing in price as well as Omnivision Technologies stock since Apple uses Omnivision’s product in their iPhone.

Stocks trade higher and lower based on several other reasons including current commodity prices. If you are an owner of apparel maker, Lululemon Athletica [stckqut]lulu[/stckqut], then it is in your best interest to monitor the price of cotton. If the price of this commodity escalates, odds are Lululemon will trade lower due to the fact the company now has to pay more money to purchase cotton. Cotton is the main fabric used in clothing so it’s price can have a huge positive or negative impact on retail companies. If cotton costs increase for a clothing company but the price of merchandise sold remains the same then profitability will decrease which might disgruntle investors. A company like Lululemon can not simply just increase their price of a hoody or yoga pant either. Doing this could lead to losing customers to competitors which would hurt the company even more. Many clothing manufacturers like Nike [stckqut]NKE[/stckqut], Under Armour [stckqut]UA[/stckqut] and True Religion [stckqut]TRLG[/stckqut] could also perish from higher commodity prices and this is why stocks in similar sectors tend to trade together.

As an investor you must always be observant and understand direct and indirect relationships between companies that makes stocks trade together. This will indubitably help make you more money during your investing lifetime. Nonetheless, this will also help prevent you from making some terrible mistakes in the future which will have a direct, and indirect, impact on your bank account.

Like what you read? Find more related articles and content at http://www.conquerinvesting.com

Article Source: http://EzineArticles.com/?expert=Troy_Huot

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Company name Dell Inc.
Stock ticker DELL
Live stock price [stckqut]DELL[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Fair
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $7.46
Target stock price (averages with growth) $10.05
Target stock price (averages with no growth) $11.87
Target stock price (manual assumptions) $7.77

The following company description is from Google Finance: http://www.google.com/finance?q=dell

Dell Inc. (Dell) is a global information technology company that offers its customers a range of solutions and services delivered directly by Dell and through other distribution channels. Dell is a holding company that conducts its business worldwide through its subsidiaries. The Company operates in four segments: Large Enterprise, Public, Small and Medium Business, and Consumer. Its Large Enterprise customers include global and national corporate businesses. Its Public customers, which include educational institutions, government, health care, and law enforcement agencies, operate in their own communities. Its SMB segment is focused on helping small and medium-sized businesses by offering products, services, and solutions. Its Consumer segment is focused on delivering technology experience of entertainment, mobility, gaming, and design. In April 2012, it acquired Clerity Solutions. In September 2012, it acquired Quest Software Inc. In December 2012, it acquired Credant Technologies.

 

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

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Apple [stckqut]aapl[/stckqut] has come under a great deal of discussion in the past week or so due to it’s ever expanding hoard of cash. Most companies hate having that much cash in the bank (or perhaps they are not fortunate enough to accumulate it) but Apple seems to really enjoy having a big savings account.

Since all the other bloggers that discuss companies and investing seem to have chimed into this conversation, I have to decided to do it as well.  Here are my suggestions:

  1. Use the cash like they have been. Apple uses its cash very effectively and very aggressively. As pointed out in PC Magazine, Apple effectively uses its cash to gain a technical advantage by locking up its supplier community in ways that their computer and device competitors such as Toshiba, Dell [stckqut]dell[/stckqut], and Hewlett Packard [stckqut]hpq[/stckqut] simply cannot afford to do. They are able to help manufacturers build their plants to create new components and lock in a pricing and supply chain that virtually locks out or delays the competition from the latest and greatest hardware advances. This competitive advantage means that they can continue to create large amounts of profit and build more cash.
  2. Increase R&D and rapidly expand their products with things that people want. Last year, Apple spent about 2.7% of revenue on R&D (and last year about 3.1%). I would like to see this grow to 7 or 8% of revenue. Yes, this is a big increase but Apple has a unique opportunity to solidify their presence in the markets that are important to them. Think what would happen if Apple had twice as many products that covered a broader spectrum of electronic experience.
  3. Increase their library. They should vastly increase their library of movies and video content to stream.  While they shouldn’t be stupid about the deals that they cut but they need to make deals with every movie and TV content holder out there. The consumer needs to feel that if they want to watch a professionally created video, Apple will always have the content. Making a ton of money in this area is not incredibly important (but don’t do it at a loss). What is more important is that they use this content to drive the sales of more multimedia devices and computers. While they are at it, they need to cut deals with the newspapers and magazines as well. Apple has had some short-sighted rules that have prevented the allegiance of those that create printed material – they need to put these rules aside.
  4. Streaming. They should make it so that they can stream to their subscribers more easily and more reliably than ANYONE else.  Supposedly they are investing in more data centers and that is a project that should be accelerated and expanded. Also, there are rumors of acquisition discussions with Hulu, this would be an acquisition that makes sense as it fits with their core offering today. Some commentators suggest that they should diversify by buying a company like Facebook but that would be ill-advised. Most companies that try to expand into vaguely related markets end up screwing up (think of EBay [stckqut]ebay[/stckqut] buying Skype).
  5. Integration with the cloud. They should make it so that integration between their products on your local network and between their products and the cloud is seamless and easy – in fact even fun.  Lion looks like it has great features in this area but they should take it to a new level. They would do well to expand that connectivity by putting a Windows application out there that makes Windows computers integrate easily and rapidly with Macs/iPhones/iPads. This doesn’t mean iTunes but instead iTunes on steroids – no cords – use the cloud, the private cloud, and the local connectivity connection of the computers.Read More →

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Company name Dell Inc.
Stock ticker DELL
Live stock price [stckqut]DELL[/stckqut]
P/E compared to competitors Good

Management execution:

Employee productivity Poor
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor

Analysis:

Confident Investor Rating Poor
Target stock price (high) $14.43
Target stock price (low) $9.54

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.