Disney's Bounce Bails Out the Dow

Disney's Bounce Bails Out the Dow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks have had a bumpy ride after an explosive start to the week, but the Dow Jones Industrial Average has managed to climb back from the day's earlier losses. As of 2:15 p.m. EDT the Dow is flat, although most of the index's blue-chip stocks are in the red. You can thank Disney for the index's performance: Shares of the entertainment giant shot up in afternoon trading after a big announcement by the company. Is your portfolio on high alert? Let's catch up on what you need to know.

Disney rockets up the charts
Disney's stock reversed direction after a mostly ho-hum day when the company's CFO, Jay Rasulo, announced that Disney will buy back at least $6 billion worth of shares. That was enough to send the stock soaring 3.4% -- enough to lead the Dow's small corps of leaders by a significant margin and help the Dow pare its losses.

It may not be a particularly well-timed buyback by Disney -- shares aren't far down from their 52-week high after the buyback announcement -- but considering all the momentum in this stock recently, it's a move that will only add more fuel to Disney's fire. The stock has more than doubled over the past two years as advertising revenue from its family of television networks has spiked and Disney park sales have also risen.

Considering this and the strength of Disney's film portfolio, there's little to dislike about this stock. It's still valued at a P/E of 19.3, just a few points above the Dow's overall P/E of about 16. There's no reason to think this entertainment giant can't keep climbing the charts in years to come.

Hewlett-Packard is holding down the other side of the Dow: Shares of the tech giant are down about 1.8%. It has been a bad week for HP and its shareholders: After it was announced that the company will be replaced in the Dow in the coming weeks, shareholders of top PC competitor Dell approved an offer by founder Michael Dell to take the company private.

Dell has hardly had more success than HP recently amid the PC industry's slump, but a privately held Dell will be able to take on its sales slump with much more flexibility than before. That's bad news for HP's PC segment, particularly if Dell slashes prices in order to court consumers -- something that will only hasten the decline in HP's PC sales. HP's personal systems branch, which includes PCs, saw revenue fall by 11% in the most recent quarter.

In the long run, however, Dell's move could be a blessing in disguise to HP investors. The company desperately needs to transition away from the losing PC segment toward growth sectors such as servers, and if Dell undergoes big changes in order to bolster its own PC sales, HP will have to take stronger action in its turnaround. HP has taken investors on a rough ride during its turnaround process, but there's still some hope for this tech giant's rebuilding. Just don't count on a miracle any time soon.

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The article Disney's Bounce Bails Out the Dow originally appeared on Fool.com.

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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