This week, there has been some awful news from the world of large-cap technology that’s kept a lid on market gains. We learned late Wednesday afternoon that personal computer growth has slowed to the most meager pace since the mid-1990s. Research firms Gartner and IDC reported first quarter PC shipments down 11% to 14% year over year in the wake of a shift among both consumers and companies to tablets and smartphones and lackluster adoption of Microsoft’s (NASDAQ:MSFT) new Windows 8 operating system.
It’s actually kind of amazing that the Dow Jones Industrials managed to produce a 0.4% gain on Thursday considering that three of its five tech components, Microsoft, Intel (NASDAQ:INTC) and Hewlett Packard (NYSE:HPQ), were pounded down by 4.4%, 2% and 6.5% respectively. Microsoft had jumped quite a bit earlier in the week on rumors that longtime chief executive Steve Ballmer was about to be ousted by the board. But that leap only led to further indignity as several brokerages today downgraded the stock to neutral or sell.
The entire PC industry was counting on Microsoft to succeed with its new operating system, which used to lead to a massive round of upgrades. Yet in recent years the OS has been largely pushed to the background due to consumers’ primary use of PCs to get online.
And Microsoft was so intent on countering that trend by making an all-new experience with Windows 8 that it went overboard, creating an environment on PCs that amazingly was the worst of all worlds: unfamiliar, hard to learn, and leading to no discernible payoff! So yes, times have really changed for those guys as the PC has become highly commoditized, and investors have been very slow to give up on the old dream.
Now contrast that with stocks in other industries, whose investors are making lots of money this season. Monday’s Trade of the Day, Boeing (NYSE:BA), has a brand-new plane, the 787 Dreamliner, which is a technological marvel — and it is just beginning its production cycle, which has been a great time to own the aircraft maker’s shares. As I mentioned last Thursday, I’m also recommending drug maker Eli Lilly (NYSE:LLY), as well as Novartis (NYSE:NVS), both of which continue to create innovative, unique products that are not commoditized. And then there’s McDonald’s (NYSE:MCD), which creates a unique restaurant experience for customers worldwide, and Femsa (NYSE:FMX), which sells Coca-Cola (NYSE:KO) and well-marketed beer such as Heineken through its own fast-growing convenience store chain in the increasingly wealthy urban areas of Latin America.
In short, we are at an interesting juncture in time when large technology companies have ceased to be innovation and earnings leaders, and have turned inward to cannibalize each other’s businesses. I actually think part of the success of the broad market this year is the exit of institutional investors from tech and the reallocation of those funds to consumer staples, health care and industrials companies that are growing faster with more unique products, and are cheaper.
InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days.
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