The CNBC headline says it all: Record-Smashing Quarter: S&P 500 Ends Above 2007’s Record Close, Dow Posts Best Q1 Since 1998. So what now? The remarkable recovery of the US stock market following the debacle of 2008/2009 is testimony to the fact that people have the ability to recover from disaster if left free to do so. Companies faced problems caused by the banking crisis and dealt with it in various ways. Some didn’t make it but most did and the recovery of the market is an indicator that today much of the US private sector is profitable once more.
One part of that CNBC article caught my eye when they stated that Hewlett-Packard (HPQ), one of the Silicon Valley pioneers, was the biggest gainer on the Dow for the quarter, skyrocketing more than 67 percent. HPQ had booked staggering losses caused by bad acquisitions and accounting irregularities. The stock dropped from $53.15 in 2010 to $12.99 in 2012. The company replaced its CEO and yesterday the stock closed at $23.84.
What’s interesting about the HPQ story is that this was a classic “stock picker’s” value story, a venerable company whose management had made some big mistakes but which had the resources to recover. It was also one of the 30 stocks in the Dow Jones Industrial Average and was for a time one of the “Dogs of the Dow.” The “Dogs” strategy forces people to buy high dividend paying stocks that are out of favor which, when they recover, often generate outsized gains. Some investment managers use the “Dogs” strategy to generate both income and capital appreciation. For more information contact us.