The Innovation Index retreats to 4%, ties U.S. major indices – Weekly Report 04-19-07

The Innovation Index dropped 3% in the last two weeks, and is now up 4% for the year. The Innovation Index is tied with two major U.S. indices, including the S & P 500 and NASDAQ. S & P 500 gained 2% in the last two weeks, and is up 4% for the year; NASDAQ gained 1%, and is also up 4% for the year; the Dow Jones Index gained 2%, and is up 3% for the year. Has The Innovation Index cooled off after beating the U.S. major indices for several weeks?



The Innovation Index closed at 72.25 on April 19, 2007, up 4% from the closing price of 69.31 on December 29, 2006.

What caused The Innovation Index to drop freely? Three innovators caused the slide, the largest drop coming from Yahoo! Inc. (NASDAQ: YHOO) which shed a whopping 14%, followed by Research In Motion (RIM) (NASDAQ: RIMM) (TSX: RIM) which dropped 9%. Apple Inc. also went down 5%. Overall, only 8 of the Top 20 Innovators showed positive gains (compared to 16 in the first week), 7 of the Top 20 Innovators showed negative gains (compared to 1 in the first week), and 5 Innovators were unchanged last week (compared to 3 in the first week).

Weekly Advances

Were it not for innovators including Intel Corporation (NYSE: INTC) that had the best two weeks in over a year gaining 11% (and now up 8% for the year), Amazon.com, Inc. (NASDAQ: AMZN) that gained 7%, and Dell Inc. (NASDAQ: DELL) that climbed 6%, The Innovation Index may have lost further ground.

“Intel net earnings for the period rose to $1.61 billion, or 27 cents a share on a 1% decline in sales to $8.85 billion. Wall Street was looking for earnings of 22 cents a share on sales of $8.9 billion. Intel's gross margin was 50.1%, down from 55.1% a year ago.” Intel profit benefited from a one-time tax gain of 5 cents a share. Intel provided a healthy 2007 outlook. Intel rival AMD posted a huge loss of $611 million. Is Intel mounting a comeback versus AMD? Can Intel become the disruptor again?

Amazon.com analysts are bullish about the first quarter earnings and 2007 performance.

Dell was up to even territory, and is now only down 1% for the year. Is Dell back for good? Perhaps too soon to tell, but analysts are feeling comfortable with Dell turnaround. Although according to Gartner, HP (NYSE: HPQ) has widened the worldwide lead over Dell. HP’s first quarter PC shipments grew 29%, whereas Dell’s fell by 8%, giving HP 17.6% of the global market, compared to Dell’s 13.9%. How soon can Dell turnaround Dell?

Weekly Declines

Yahoo! Inc. led all innovators for the first quarter of 2007. As recently as the April 05 Innovation Index report, I had written: “Yahoo leads all innovators with 25% gains for the year, and we are only in April. At this rate, can Yahoo gain 50% in 2007? It is quite possible.” What happened to Yahoo? Yahoo profits for the first quarter fell short of analyst expectations as expenses rose, profits were down 11% from 2006, sales only grew 9%, and the outlook did not excite the analysts. All these led to 14% drop. The analysts and investors are not providing Yahoo! any time and room for Project Panama and the new search to show impact. Adding salt to the injury was Google Inc. (NASDAQ: GOOG), another top innovator, which just announced the earnings today after market close; Google profits were up 69% compared to 2006, and net sales up 66%. Google stock is up in after hours. More on Google earnings and comparison to Yahoo in next week’s report. I had written a column on “Can Yahoo! catch Google?” in March. The current quarterly reports show a widening gap between Google and Yahoo in revenue, profits, growth and outlook. Has Google delivered a knockout punch to Yahoo! with DoubleClick acquisition? Yahoo is still up 8% for the year.

Blackberry maker Research In Motion Limited (NASDAQ: RIMM) went down 9% despite a record quarterly earnings, surging revenue growth of 66% over 2006, and good outlook – RIM is suffering from too much of a good thing as the analysts are overly optimistic about its future. Blackberry service suffered an outage that raised more alarms.

Finally, Apple Inc. (NASDAQ: AAPL) was down 5% after deciding to hold off the release of Leopard until October 2007. Apple announced that it is trading off Leopard for iPhone for now. Analysts and Investors did not take this kindly. Sure revenue from Leopard versus potential revenue from iPhone? Could Apple have delivered a big blow to Windows Vista when Vista was vulnerable by the timely release of Leopard? Dell just announced that it will offer Windows XP to customers if they so decide.

Yearly Leaders and Laggards

We have a change in yearly leaders for the first time in 2007. Amazon.com, Inc. (NASDAQ: AMZN) and America Movil (NYSE: AMX) lead all innovators with 13% gains for the year. eBay Inc. (NASDAQ: EBAY) has a solid 10% gain for the year. eBay quarterly results beat estimates, earnings were up 59% from 2006, and the outlook was favorable. eBay's PayPal business showed strong growth. Can eBay grow on this results with new innovations?

Starbucks Corporation (NASDAQ: SBUX) is down 13% this year. Starbucks needs a good earnings report to halt the slide.

The Innovation Index Annual Report

I posted The Innovation Index Annual Report earlier in the year that included three Chapters:

Chapter One - Total Innovation Activity at the Top 20 Innovators
Chapter Two - The Top Innovator - The Innovator of Innovators
Chapter Three - The Innovation Insights and Roundup

About The Innovation Index

The Innovation Index introduced in December 2006 is a weighted stock price index of the top 20 Innovators in North America.

The Innovation Index has returned 119% over the last five years. This assumes an investment in each stock of The Innovation Index (buying each stock). An average of $100 invested in The Innovation Index on December 31, 2001 returned $219 as of December 29, 2006. By comparison, $100 invested in each of S & P 500, NASDAQ and Dow Jones Index returned $124. The Innovation Index beats the S & P 500, NASDAQ and Dow Jones Index by 77% over the last five years.

The Normalized Innovation Index has returned an impressive 174% over the last five years. This assumes equal investment in each stock of The Innovation Index.

Alphabetical list of the top 20 Innovators of The Innovation Index and their stock ticker symbols:

3M Company - (NYSE: MMM)
Amazon.com, Inc. - (NASDAQ: AMZN)
America Movil - (NYSE: AMX)
Apple Inc. - (NASDAQ: AAPL)
Cisco Systems, Inc. - (NASDAQ: CSCO)
Dell Inc. - (NASDAQ: DELL)
eBay Inc. - (NASDAQ: EBAY)
General Electric Co. - (NYSE: GE)
Google Inc. - (NASDAQ: GOOG)
Hewlett-Packard Co. - (NYSE: HPQ)
Intel Corporation - (NYSE: INTC)
International Business Machines Corp. - (NYSE: IBM)
Microsoft Corporation - (NASDAQ: MSFT)
Research In Motion Limited - (NASDAQ: RIMM)
Southwest Airlines Co. - (NYSE: LUV)
Starbucks Corporation - (NASDAQ: SBUX)
Target Corp. - (NYSE: TGT)
The Proctor & Gamble Company - (NYSE: PG)
Wal-Mart Stores, Inc. - (NYSE: WMT)
Yahoo! Inc. - (NASDAQ: YHOO)

The Innovation Index will analyze the positions and standings of the top 20 Innovators at the end of each year. For 2007, there will be no further changes in The Innovation Index.

Disclaimer: I invest in the stocks comprising The Innovation Index.