Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five.
It's Usual Suspects Week on the Friday Five. Names you've heard before, but have the stories changed?
Here with me to offer the details is Morningstar's markets editor, Jeremy Glaser.
Jeremy, thanks for joining me.
Jeremy Glaser: You're welcome, Jason.
Stipp: So, what you have for the Friday Five this week?
Glaser: Well, this week we're going to take a look a look at oil shocks, at Wal-Mart, at Home Depot and Lowe's, General Motors, and finally, we'll take a look at Hewlett-Packard.
Stipp: So, Jeremy, after a period of relative calm at the beginning of the year, we've had some turmoil overseas. It's causing oil to spike, and it's causing a lot of concerns. What's the story there?
Glaser: Oil shocks are certainly nothing new. Since the 1970s, really as a nation, we've had a lot of handwringing about the effect of higher oil prices and suddenly higher oil prices, and this is important. Oil prices affect a ton of industries, from airlines, to anyone who wants to ship anything, to even auto makers if gas prices were very high. Certainly, we have a lot to worry about if oil prices double from their current levels--not than anyone is predicting that.
This week, with further unrest in North Africa and the Middle East, and particularly in Libya, we had more concerns about what's going to happen with the price of oil. Supply, it looks like, could be constrained, even if not by a lot right now, it's still a constraint, and demand is continuing to rise, particularly from emerging markets. That imbalance is going to lead to higher prices, and that's going to have a lot of knock-on effects throughout the United States' economy.
Now, is this going to be enough to derail the recovery? I think it's too early to say. Certainly, it's going to have an impact, but I think a lot of it will depend on how long these oil prices stay high, if other producers such as Saudi Arabia are able to produce more oil or if they also get caught into the turmoil and produce less oil. So, those are really the big open questions.
So, it's too early to say if oil or other commodities are going to knock us off course, but oil shocks are nothing new and something that we could be talking about for a while.
Stipp: In corporate news, Wal-Mart reported, I guess we could say, results that failed to inspire. Is this the same old story from them? What's been going on with their earnings trends?Read Full Transcript
Glaser: Wal-Mart's earnings trends have been somewhat middle lane. Certainly, they survived the recession. People were looking there for bargains. They were looking to buy their staple products, but Wal-Mart really hasn't been able to see the growth that they once saw.
They've looked to international markets. They've looked to smaller stores in urban markets, which they're rolling out more aggressively, to find this growth, but they haven't really hit that stride yet, and I think that a lot of investors are getting concerned about their ability to do so.
But the thing with a company like Wal-Mart that has such a wide moat is that they can really take their time. They can really invest in these initiatives that are going to pay off for the long-term.
We see here in Chicago, they're making a big push to open neighborhood markets, and to move into areas of the country that previously they didn't have a big footprint.
I think Wal-Mart will be able to do that. I think they have the resources. They have just the incredible relationships with the suppliers for everything that comes into their stores.
Certainly, Wal-Mart maybe didn't have a great quarter, but I think the future for the company still looks pretty good.
Stipp: Home-Depot and Lowe's were other retailers that also reported. We here at Morningstar have said for awhile that these companies have got a lot of potential ... and when the housing market recovers even a little bit, a lot of this demand will start to come online.
Did we start to see that or was it the same old story in their results?
Glaser: Certainly these other big-box retailers that may even be in the same strip malls as the Wal-Mart, also struggled pretty aggressively during the downturn.
When people weren't buying new homes, when people weren't remodeling their homes, there was really no need to go to Home Depot or to go to Lowe's and buy a new washing machine or buy a new refrigerator. That's starting to turn around. We've seen a couple of quarters of really more growth from these companies, and we had better-than-expected results this week from both of the companies. But I think what was important was that consumers were not only going in and buying low-ticket items, there was also very impressive growth in the big ticket things. The durable goods that people are only going to buy when they feel confident, when they know they're either going to be in this house for a while, i.e., they are not going to get foreclosed on, or they bought a new house.
I think this is a good sign for the company. I think it's a good sign for the economy, and hopefully, this is a story that we'll now be telling the good side of, and we can stop looking at the rearview mirror and worrying about how the housing bust is going to impact these stocks.
Stipp: In the auto industry, GM reported. They have actually had a good broken record over the last few months anyway with their sales trends. Did we hear some good news from them continuing?
Glaser: We did. They had a decent quarter and actually posted a profit for the entire year for the first time since 2004. That's really an important milestone for the company as it emerges from its bankruptcy, it re-emerges as a publicly traded stock, and really tries to gain back some of that consumer confidence and consumer goodwill that they lost over those past couple of years.
Certainly GM is not completely out of the woods yet. Their margins are still compressed, because they haven't really reached the scale that they need to yet, but the future still looks bright for them.
Our auto analyst, Dave Whiston, continues to think that GM will be able to "print money," something that they are really starting to do. They are profitable. They will probably continue to be profitable. They really made a transformation through this bankruptcy, and hopefully, again, the story for them will be more positive going forward than some of the negative stories we were telling just a few years ago.
Stipp: In the tech industry, HP reported. Are some of the problems still plaguing them that we'd seen plaguing them in the past?
Glaser: Certainly HP is almost the opposite of some of these other stories today, in that things were actually looking up for them and now things have started to look maybe a little bit more grim.
Improving demand in the enterprise market for both servers and PCs really boosted them, while their CEO, Mark Hurd, really made a very concerted effort to cut costs and to get margins up.
Of course, since then, Mark Hurd's departure from the company, from some upheaval on the board in general, and now this quarter we saw a weakening of demand for some of their products and a very weak outlook for the rest of the year.
Certainly, that doesn't bode well for Hewlett-Packard. The cost-cutting that Hurd was doing couldn't have gone on forever. You could only cut so much to the bone, but it seems that the new management team is still trying to get their bearings, still trying to figure out exactly how to run that enormous ship.
I don't think HP – obviously, they are not down for the count. They have those strong competitive advantages. They will be able to get through this, but in the short- to medium-term, it looks like things weren't going to be as bright as we had initially expected.
Stipp: Well, Jeremy, it's not always the same old story from you. I am glad to have you every Friday on the Friday Five, and thanks for joining me today.
Glaser: Very welcome Jason.
Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.