Can IBM breakout? I don’t know, I’ve been waiting for this moment for over 2.5 years. Perhaps my patience will pay off.
IBM has been constrained in a trading range for a decade. They finally fired their CEO and it appears the acquisition of Red Hat is generating above trend growth.
IBM’s growth has been dreadful, but I’ve been attracted to it because of their endowment-like cash flow and 4%+ dividend. I’ve always thought that if they could just put forth a little effort, they could turn things around.
The stock price is finally above its long term moving average. If investor sentiment can improve to moderate levels, then valuation expansion could drive the price up substantially. The forward price per earnings (FPE) valuation for IBM is less than 11 times; Cisco’s is about 15, FaceBook 18.5, and Google 25. The attached chart shows the price level that IBM could attain if its valuation rose to those levels. These are substantial gains, from 39%-130%, achievable simply by a shift in investor sentiment.
I don’t know if IBM can breakout, I’m continuing to hold my position, and I remain a firm believer that the rally in Tech stocks isn’t over. You can hear my latest thoughts on Tech stocks and the Wuhan coronavirus here: https://www.wealthsteading.com/307/
Also, if you missed it, here’s a link to a short video from last week where I show coronavirus panic spiking the VIX: https://www.youtube.com/watch?v=ffOhfYhmTjY