Betting on Big Blue?

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.

Disclaimer:

This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. 

Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.

It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations. 

The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.

This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.

ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS   INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.

For more information, visit our Disclaimer: www.goldmanresearch.com