Consider IBM, because it's been through a recession or two

Posted Feb 18th 2009 7:00PM by Joseph Lazzaro
Filed under: International Business Machines (IBM), Stocks to Buy

It's a cliché, but it's true, and bears repeating during these challenging economic times: it's not a market for faint-of-heart investors, and those with low risk tolerances.

Most investors are side-lined, and with good reason. The pronounced U.S. recession continues. The markets await the U.S. Treasury's plan to deal with the banking system's toxic assets. Meanwhile, other economic issues await policy resolution in Washington, but the two major political parties are not exactly singing kumbayah.

Well what's an investor to do? You 'Think Blue,' if you can tolerate moderate risk, with IBM.

International Business Machines Corp. (NYSE: IBM) recently posted better-than-expected Q4 EPS of $3.28, versus a consensus estimate of about $3.00, which suggests the company should perform better than the flat-to-low-digits revenue increase analysts estimate for FY 2009.

The likely shining units for `09? Service contracts, and IBM's software division, the latter aided by recent acquisitions. The laggards? Systems & technology. Another plus: IBM's cost containment, which will help margins. The First Call FY 2009/FY 2010 EPS estimates for IBM are $9.05/$9.86.

Other tangibles of significance: IBM's vast resources and attractive geographic footprint (U.S. accounts for 42% of revenue; Europe, 35%; Asia, 20%; other, 3%) means the company has the operational stance and infrastructure to take advantage of the economic recovery, wherever it appears first on the globe. Now, most likely that recovery will start in the United States; but the important here is that if it's in another region, IBM will be ready for it.

Stock Analysis: IBM is a moderate-risk stock. Consider buying a 25% position in IBM now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your IBM position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $62.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: computers, emerging markets, ibm