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A SPECIAL ANNEX NEWSFLASH

Analysis of HP and CSC Stock Performances

Keeping Faith, Losing Faith

Eight of Top 10 HP Holders Add to Their Positions in 4Q03; 17 of Top 25 CSC Owners Reduce Their Holdings

PHOENIX, May 1 - Hewlett Packard management got a resounding vote of confidence from their largest shareholders in the fourth quarter of 2003 despite the stock's meager performance (see the charts and "Still No Cigar", Feb 2004).

Computer Sciences Corp.'s (CSC) biggest owners, by contrast, voted with their feet.  Most reduced their holdings in the last three months of last year, perhaps in anticipation of the slide in the CSC stock price in 2004 to-date.

Whatever their motivation, eight of the Top 10 HP holders added to their HP positions in the last three months of 2003, some quite aggressively. 

Whatever their motivation, 17 of the Top 25 CSC holders sold off their holdings in the last three months of 2003, some quite aggressively.  

So as you can see, the fourth quarter actions of the HP versus CSC institutional shareholders is a study in contrasts.  HP's were keeping the faith, while CSC's were losing it.  At least, that's the story the numbers tell.

JP Morgan Fleming, for example, wasn't even on the Top 25 HP list the last time we checked (as of Sep 30, 2003).  Yet after buying 16.5 million shares in the fourth quarter, a 131% increase in its HP positions, this Wall Street is now the 14th largest HP shareholder.  And JP Morgan Fleming is certainly HP's biggest cheerleader when it comes to putting one's money where one's mouth is.

JP Morgan Fleming was also one of the few buyers of the CSC stock.  It increased its holdings in the fourth quarter by about 16%.  But Goldman Sachs, Alliance Capital and American Century Investments led the pessimists, reducing their holdings by 41%, 34% and 30% respectively.

The vote of confidence in HP from the Top 25 institutional shareholders was not universal, either.  Ten of the Top 25 holders reduced their positions in the fourth quarter, some also quite aggressively.  Morgan Stanley, Primecap, Deutsche Asset Management and Jennison Associates, for example, all sold off 20% or more of their HP holdings.

So keeping the faith - believing that the stock will rebound and eventually start to mirror the company's solid business results - appears to be the way HP's biggest holders feel (see "Strong Finish Not Enough", Nov 2003 and "Still No Cigar", Feb 2004)

But institutional shareholders own about 65% of HP versus 91% of EDS, for example (see EDS: On a Wink and a Prayer, Apr 2004).  And even if one throws into the pot of optimists the insiders' 7% holdings, that still leaves about 28% of public shareholders as the "swing vote."  Those and other general public would-be buyers seem to be the ones HP needs to convince that its stock at $19.70 is indeed a bargain in today's market place.

In CSC's case, institutional shareholders own about 77% of the company.  So winning the favor of the biggest holders seems a little more important for CSC than for HP.  And CSC seems not to be doing as well in that regard.

Different strokes for different folks... even when it comes to the "gold" and "silver" medal winners in our Octathlon 2004 competition (HPS Wins by a Nose!, Apr 2004).  The way their institutional owners are treating the two companies couldn't be more asymmetrical.

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... 

2004 IT Services: HP, CSC: Keeping Faith, Losing Faith (Apr 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

2004 HP: "HPS Wins by a Nose!" (Octathlon 2004); "A Passage FROM India" (Feb 2004);  "Still No Cigar" (Feb 2004); "Nokia Dials HP!" (Feb 2004)

2003 HP: "IBM vs. HP: And the Winner Is..." (Nov 2003); "Strong Finish Not Enough" (Nov 2003) "An HP Hat Trick (March 2003);   EXCERPTS - Analysis of Hewlett Packard Services FY02 results (May 2003);  2003 Global IT Services Heptathlon (May 23, 2003)Analysis of “Top 10” IT Leaders’ Market and Business (June 2003)

Or just click on and use "financial engineering" or similar  keywords.

Volume XX, Annex Newsflash 2004-10
May 1, 2004

Bob Djurdjevic, Editor
(c) Copyright 2004 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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