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Where "Muted Gains" Will Matter Most

Q: What's your take on Hewlett-Packard (HPQ )?

A: We currently rank Hewlett-Packard shares as 3-STARS, or hold. HPQ reported July quarter earnings of 23 cents per share, 4 cents below our estimate on revenues that also fell a little short of our model. Gross margin was 100 basis points (1 percentage point) below our estimates, and HPQ admitted it priced desktop computers too aggressively. Shares are selling close to our target price, based on our discounted cash-flow analysis. We therefore advise holding.

Q: What effect does the weakening U.S. dollar have on the market as a whole?

A: Although the dollar weakened significantly against the yen and was recently at a three-year low against the yen, it's not at a low against the euro. Our economists believe the dollar has been too strong for the last few years. We think an orderly decline in the dollar will ultimately be good for stocks, since it will improve earnings of companies with overseas sales or operations. In the short term, however, there may be some pain, particularly in the bond market. Nevertheless, we see an orderly decline in the dollar as a net positive.

Q: How is United Parcel Service (UPS ) ranked?

A: UPS currently has a 3-STARS ranking. The shares trade at a value, based on our 2004 target price, well above those o

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