Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

International Business Machines Corp. (IBM), McDonald’s Corporation (MCD), General Electric Company (GE): 3 Dow Stocks Disappoint

International Business Machines Corp. (NYSE:IBM) reported less-than-stellar results on April 18. The next day the stock price dropped like a rock, down more than 8%. A third of the gain made over the last two years was wiped out.

Big Blue, the highest-priced stock in the Dow Jones industrial average, dragged the entire index down and it barely broke even. The broader market was mostly up on the day.

Are things really that bad with a company that had appeared to make a successful transition from the world’s biggest maker of PC’s to one of the biggest business-to-business suppliers of services and computer hardware and software? Will the most innovative company in the world have to reinvent itself again?

For the first time since 2005, the company reported earnings that were lower than consensus estimates. And as a supplier to most of the large-cap companies that are fellow members of the S&P 500 and to many government agencies, some analysts portend that the results are an ominous signal that the broader market and the economy are due for a setback, too. The theory is that if IBM is not making money its corporate customers are holding back on spending.

International Business Machines Corp. (NYSE:IBM)However, International Business Machines Corp. (NYSE:IBM) officials indicated that the problem was due to poor execution on the part of the company’s sales force and is not an underlying structural weakness or lack of product offerings. There probably will not be a rush to offer other forms of business services, such as cloud-based technology for example, by the Armonk, NY-based company.

In the past, the company has been able to overcome sagging revenue, like the 5% drop just announced, and increase EPS by buying back boatloads of its own stock, spending over $100 billion in the process over the last 10 years. Share count has gone down by 35%. IBM has also returned even more value to investors by consistently raising its dividend.

This time financial engineering may not work and International Business Machines Corp. (NYSE:IBM) will probably need to close more deals in order to grow earnings again.

Fast food lagging too

Another Dow component reporting results that disappointed analysts was the fast- food restaurant chain McDonald’s Corporation (NYSE:MCD), which missed earnings estimates by a penny. The stock suffered and shares were down by about 2% on the day, interrupting a recent rally.

For the last year or so, the company has been warning that same-store sales were declining and could hurt McDonald’s performance. I guess they were right.

McDonald’s Corporation (NYSE:MCD) has been addressing the revenue weakness by trying to lure customers away from competitors with advertising and offerings geared toward the low-priced dollar menu instead of the “Extra Value” meals. Management stated it was willing to reduce margins in order to improve sales.

Based upon its history, the company will probably be able to ride out the storm. It appears to know what to do.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.