Betting on Big Blue?

Written by GSCR Staff   
Friday, 18 October 2013 07:14

Betting on Big Blue?

We will continue the theme from Monday’s Goldman Guide of playing big names.

 

Yesterday IBM (NYSE – IBM - $174.83) got clobbered for a nearly 6.5% single day loss on hugely disappointing 3Q13 financial results. The sell-off made it the worst performing DJ stock of 2013, hitting a two year low. Immediately after the call, there was a C-Level shake-up in the Growth Division at the Company. Clearly, CEO Virginia Rometty is feeling the pressure.

Is this a buying opportunity?

Looking at IBM from our three point checklist for the current market conditions does not offer much consolation for the bulls. The charts are very bearish in all time durations for DMA. The stock has averaged nearly 4 million shares traded per day on the 3 month sell-off, the reverse of an accumulation phase. Finally, the one bright spot is that FY P/E is under 10 based on 2014 earnings forecast of $18.27 per share, an increase of 8% over 2013. But does that make it compelling?

Years ago, IBM made the impressive transition from a hardware producer to a software and solutions provider and the Company has flourished. Has the Company reached an inflection point where it has peaked in its key markets or is it ‘over-diversified’ like GE? These are some important questions to ponder in the longer term

For the short term, we lean toward the side of playing big names and taking some profit. Clearly, with the current beaten-down price and a market cap of nearly 192 billion dollars, mega-cap IBM is out of our small cap universe. Bottom fishers seduced by valuation and big index growth may find the stock a rare buying opportunity for a venerable name. If you adhere to the Dogs of the Dow Theory IBM could be a big winner in 2014, for the patient investor.

On a side note, the biggest game of this year’s college football season to date is an ACC showdown between Florida State and Clemson. This is the first top 5 match-up held in the state of South Carolina---ever. I like FSU giving three points, even as the road team.

Have a great weekend!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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