Value Daze: Hewlett-Packard Meltdown Hammers Value Funds

 

Here's a headline you don't see every day: Tumbling tech titan trashes value funds.

The Hewlett-Packard File
Operations
Business: Computer and imaging equipment and services
Stock Snapshot
52-Week Range: $32.63-$78
Percentage Change from Jan. 1: -11.5%
Market Cap: $77.4 billion
P/E Ratio: 24.1
Source: Baseline and Morningstar.

On Monday computer giant Hewlett-Packard(HWP Quote) posted fiscal fourth-quarter earnings of 41 cents a share, missing Wall Street analysts' estimates by a whopping 10 cents. The disappointment comes on the heels of similar misses from other PC shops like Apple Computer (APPL Quote) and Dell (DELL Quote) and a Sept. 22 H-P prediction that it would meet analysts' targets.

Hewlett-Packard shares, already down 11.5% this year prior to Monday, were off $5.69, or 14.5%, at $33.44 in Monday midday trading. When a big tech stock blows up, growth funds -- currently carrying a fat 40% tech stake on average -- are usually the biggest casualties. But not this time.

Today some 160 large-cap value funds own H-P shares -- about 50% of the category. By comparison, only 30% of big-cap growth funds, 111 funds, and just 18% of tech-sector funds, 20 funds, are exposed to the company's sagging shares.

De-Valued
It may come as a surprise, but the fund category getting hit the hardest by H-P's warning is the value camp, not growth or tech
Funds % Owning H-P Shares
Large-Cap Value funds 48%
Large-Cap Growth funds 30
Technology funds 18
Source: Morningstar. Holdings as of most recent portfolio reports.

To say the least this probably comes as a surprise to many value-fund shareholders, who probably picked a value fund to insulate themselves somewhat from precisely this type of tech-stock implosion.

Related Stories
PC Sector Biggies Keep Dropping Like Flies

In the classic definition, value funds are essentially bargain hunters -- typically focusing on cheap stocks of steadily growing companies, which tends to keep tech stocks out their portfolios. The average large-cap value fund has just 14.4% of its money in tech stocks -- less than half the mercurial and pricey sector's weighting in the S&P 500 s&p500, according to Morningstar.

But in recent years tech has led the market, motivating many value-fund managers to nibble at the sector's battered types. And H-P fits that bill with a 24.1 price-to-earnings pricetoearnings ratio nearly in line with the broader market and a 19% five-year annualized return that slightly trails the S&P 500.

Big Up, Big Down
H-P has outpaced the market on the upside and downside in recent years

For their part, growth-fund managers -- who seek out the fastest growing shops without fearing high valuations -- have been dumping shares of shops like H-P that depend on the maturing PC market for much of their growth. At the start of the year nearly a third of tech funds owned H-P shares, but by Sept. 30 that figure had fallen to 18%.

Of the 10 funds with the highest percentage of their assets sunk into H-P's shares, only one ((MISEX Quote)Midas Special Equities) is a growth fund. The list includes one of the biggest value funds out there, the $19 billion (NYVTX Quote)Davis New York Venture fund, which had a 5.1% H-P position on June 30 -- the date of the most recent data available on the firm's Web site.

Funds With the Biggest Stake in Hewlett-Packard
Fund Percentage of Assets in H-P YTD Return
(SDOWX Quote)Strong Dow 30 Value 7.9% -6%
Fidelity Exchange 7.2 -2.6
(OFTDX Quote)Orbitex Focus 30 D 6.8 -16.8
(CNGRX Quote)Fidelity Congress Street 6.7 2.1
(STFGX Quote)State Farm Growth 5.9 -4.7
(FLCIX Quote)FTI Large Cap Growth & Income 5.8 -0.7
(DGIAX Quote)Davis Growth & Income A 5.5 -1.4
Kenilworth 5.3 NA
(NYVTX Quote)Davis NY Venture A 5 5.7
(MISEX Quote)Midas Special Equities 4.7 -15.6
Source: Morningstar. Performance through Nov. 13.

The value fund's co-manager, Chris Davis, appears to like H-P quite a bit. It also holds a significant position, 5.5%, in the $83 million (DGIAX Quote)Davis Growth & Income fund, and on Sept. 30 it had a 3.2% position in the $5.2 billion (SLASX Quote)Selected American fund -- a large-cap value fund Davis also co-manages.

While some might chide value managers for buying H-P, it's an understandable decision. Similarly this year, many have started nibbling at battered tech types like the floundering Lucent Technologies(LU Quote), down more than 68% this year.

While value managers have found that cheap tech stocks like these have gotten, well, cheaper, their price-conscious streak has kept them ahead of growth peers this year. The average big-cap value fund is up 2.6% since Jan. 1, while the average tech-stuffed large-cap growth fund is down just over 8%, according to Morningstar.

If you're shopping for a tech-light value fund, the Big Screen sifted the fund world for those very funds just a couple of weeks ago.

  • Loading Comments...
  •  

SHARE:

  • email
  • print
  • comment
  • digg
  • delicious
  • linkedin
Editorial Assistant Dan Bernstein contributed to this article.

Recent Comments





Connect with TheStreet

Dow Jones S&P 500 NASDAQ 10-Year Note
10,337.05 1,095.94 2,183.73 34.23
Oil *
72.45
UP
51.08
UP
4.01
UP
10.74
UP
0.31
10 Yr
3.42%
SPDR Gold
110.84
+0.50%
+0.37%
+0.49%
+0.91%
Data delayed 20 minutes

Brokerage Partners

TheStreet Premium Services

All Services