The editor of the blue chip advisory, Dow Theory Forecasts, contends, "But over the last 12 months, the picture changed. Strong operating momentum is now propelling genuine operational growth despite U.S. economic weakness."
"Acquisitions and cost cuts have accounted for most of IBM's growth in recent years. In the 10 years ended 2006, sales increased at an annualized rate of less than 2%, and the company lost both market share and influence.
"However, sales growth has accelerated in each of the last three quarters, and per-share profits have risen at least 23% in each period. Consensus estimates, trending upward over the last month, project per-share-profit growth of 24% in 2008 and 11% in 2009.
"A broad business mix has helped the company keep growing during the economic slowdown. IBM may still be best known for its hardware, but the company's strength over the last year has stemmed from the services and software businesses, which tend to be less economically sensitive than hardware.
"Hardware accounted for about 18% of sales in the six months ended June, while services represented 58% and software generated 20%. Financing operations brought in most of the last 4%.
"While the current economic climate has pinched the consumer, companies are still investing heavily in new technology. IBM's products and services help customers improve efficiency, productivity, and security, which in turn can reduce costs. In the six months ended June, IBM's revenue rose 12%, while per share-profits jumped 34%. Revenue from services increased 17% in the six-month period.
With concerns over recession, turmoil in the financial sector, fear of rising rates, high market volatility and a rising aversion to risk, many investors have been avoiding technology stocks.
Investors have feared that these economic headwinds will dampen both consumer spending for technology products and reduced capital expenditures for technology in the corporate sector.
Despite these concerns, some of the newsletter industry's leading advisors are looking beyond the current malaise and seeing longer-term value in some of the tech sector's leading players. They believe that much of the "bad news" is already reflected in the price of the shares, with little recognition being given to their longer-term potential.
For those willing to go against the crowd and buy, as they say, "while blood is running in the street," we offer a six-pack of technology stocks that the some top advisors considers to be among their favorite ideas.
This post is one in a series on prominent company nicknames. See all 25, and share your thoughts and memories about Big Blue below in the comments.
Although there shall probably always remain unanswered speculation as to exactly how the nickname came to be, most people in business or industry today know, when you mention Big Blue, you're talking about IBM, International Business Machines Corp. (NYSE: IBM). It's a name that invokes a respect of power, much in the same way that motorists pull aside for a fire engine or stop for a moving train. As reflected in the three letter company logo, Big Blue is solid and steady, yet quite on the move.
People have attributed the company nickname to a past company dress code, when employees were required to wear white shirts and most of them wore blue suits. That theory seems a bit shallow to me. Besides, that policy was done away with in the 1990s by CEO, Lou Gerstner. Since that time, I haven't noticed anyone calling IBM, Big Business Casual.
A second theory about the company moniker follows a more logical theme. It relies on the fact that IBM uses blue for its company logo and equipment, blue being a color that denotes strength. People also naturally associate blue with largeness, similar to the sky, the oceans, and even outer space. When used in context, people just know what big company you're talking about when you use the name. For instance, if I asked my step-mom; "How are you and Big Blue doing?" she'd immediately know I was referring to one of her independent engineering contracts with IBM.
In its previous two earnings reports, analysts have been pleasantly surprised by International Business Machines (NYSE: IBM). Two quarters ago, IBM squeaked past analysts' earnings predictions by a mere penny, but last quarter IBM dusted those dudes by nearly 12 cents. What will it be this time around? Can Big Blue pull it off once again? Analysts are posting a consensus average of $1.44 per share.
The company gives an optimistic picture of itself, which is nothing unusual for IBM. It's in the process of an aggressive share buy-back program and expects to spend approximately $12 billion on that this year. Launch of the company's System z10 mainframe has been received as well as expected, and in January the company issued $3.5 billion of 18 month floating rate notes, allowing reclassification of a significant amount of debt.
The Associated Press reports a selected analysts review that depicts global strength coupled with conservative optimism. No points of particular concern are mentioned. The company withheld making it's own quarterly forecast, but analysts and the company are aligned with predictions of $8.25 EPS for the year. I found nothing that persuaded me to question the analyst's average consensus. I'll say $1.44 it is.
Gary Sattler is a freelance blogger. He does not knowingly hold interest in the companies mentioned in this blog post.
The company pleased investors late last month, when it authorized $15 billion in additional funds for use in the IBM stock repurchase program. That amount was in addition to about $400 million remaining from a prior authorization. Management said that the anticipated repurchase activity could add five cents per share to FY08 earnings and that led to declaration of FY08 EPS guidance of at least $8.25 ($8.22 consensus).
TheStreet.com's Jim Cramer says companies with great earnings might be worth a look.
Stocks are cheap on an earnings basis -- unless they have earnings risk. If they have no earnings risk, they are not cheap.
Therein lies the conundrum on a day like today. Let's say you went CAMPing today: You bought Coke (NYSE: KO) (Cramer's Take), Altria (NYSE: MO) (Cramer's Take), Merck (NYSE: MER) (Cramer's Take) and Procter & Gamble (NYSE: PG) (Cramer's Take). Do you know that even after the precipitous falls last week and the declines we expect today, that none of them is historically cheap? Do you know that most of them are up significantly since last summer?
That's a real issue. You aren't buying them at rock bottom prices because they are up so much already.
Now, let's take the examples of the cyclical stocks in the Dow. They are cheap: United Tech (NYSE: UTX) (Cramer's Take), Honeywell (NYSE: HON) (Cramer's Take), Alcoa (NYSE: AA) (Cramer's Take). But their earnings estimates are considered vulnerable to the worldwide slowdown and a U.S. recession.
You can chicken out, buy some Microsoft (NASDAQ: MSFT) (Cramer's Take), which has good earnings, or IBM (NYSE: IBM) (Cramer's Take), which just had great earnings, and in many ways those will be cheaper.
International Business Machines Corp. (NYSE: IBM) shares are trading higher today on news that it will buy privately-held Solid Information Technology, a data-retrieval company. The move will allow IBM to add real-time data access capability to its database and information management offerings. Terms of the deal were not disclosed. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on IBM.
After hitting a one-year low of $88.77 in March, the stock hit a one-year high of $121.46 in October. IBM opened this morning at $109.90. So far today the stock has hit a low of $109.15 and a high of $110.99. As of 11:40, IBM is trading at $110.36, up $1.52 (1.4%). The chart for IBM looks bearish but improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $100 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 4 weeks as long as IBM is above $100 at January expiration. IBM would have to fall by more than 9% before we would start to lose money.
IBM hasn't been below $100 by more than a few cents since April and has shown support around $104 recently. This trade could be risky if the economic slowdown puts a damper on the technology sector, but even if that happens, this position could be protected by the strong support the stock found at $100, where it bottomed in November. Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in IBM.
International Business Machines Corp. (NYSE: IBM) is higher this morning after subsidiary IBM Lender Business Process Services announced that the company has been approved to provide its mortgage technology services for government-insured FHA loans, a type of loan that is expected to increase in popularity as worries increase around the mortgage industry. If you think this means that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on IBM.
IBM has been climbing over the past 12 months, hitting a 52-week high of $118.89 last week. IBM opened this morning at $116.15. So far today the stock has hit a low of $115.60 and a high of $117.50. As of 10:50, IBM is trading at $115.67, up $0.12 (0.1%). The chart for IBM looks bullish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $100 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 6 weeks as long as IBM is above $100 at October expiration. IBM would have to fall by more than 13% before we would start to lose money.
EMC Corporation (NYSE: EMC) opened at $18.87. So far today the stock has hit a low of $18.53 and a high of $18.88. As of 10:55, EMC is trading at $18.69, up $0.18 (1.0%).
The company announced today that it has extended a licensing agreement with IBM (NYSE: IBM) that will allow IBM to continue using EMC technology in its System z products. Technical indicators for EMC are bullish but deteriorating, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $17 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 11.1% return in just 2 months as long as EMC is above $17.00 at September expiration. EMC would have to fall by more than 8% before we would start to lose money.
EMC has been steadily rising over the past year and hasn't been below $17 since early June. The stock has shown support around $18.00 recently. This trade could be risky if EMC has broken its upward trend in the past two weeks, but even if that happens, this stock could find support right around $18 where it bounced off its 50 day moving average.
Brent Archer is an options analyst and writer at Investors Observer.DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in EMC or IBM.
International Business Machines Corp. (NYSE: IBM) opened at $115.00. So far today the stock has hit a low of $114.65 and a high of $116.48. As of 10:50, IBM is trading at $115.50, up $4.42 (4.0%).
The stock is cruising to a new one-year high today after last night's earnings report beat estimates. The company reported earnings of $1.50 per share on revenue of $23.8 billion, while analysts expected earnings around $1.47 per share on $23.1 billion revenue. Several analysts lifted future earnings estimates for the company after this stellar report, further boosting shares. Technical indicators for IBM are bullish but deteriorating slightly, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $100 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk and leverage returns. For this particular trade, we will make a 5.3% return in just three months as long as IBM is above $100 at October expiration. IBM would have to fall by more than 13% before we would start to lose money.
IBM hasn't been below $100 since April and has shown support around $108.25 recently. This trade could be risky if today's earnings aren't as good as they seem at first blush, but even if that happens, it looks like this position could be protected by the strong support the stock found just around $100. Also, IBM has bounced off of its 50-day moving average twice in the past two months. Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in IBM.
According to options trading expert Larry McMillan, "Three favorable economic data releases in as many days has changed the fundamental and also technical picture from bearish to moderately bullish in as many days."
In his The Options Strategist trading newsletter he explains, "Resistance at 1515 to 1520 for the S&P 500 was overcome on a closing basis; and new all-time intra-day highs (1552) for the index are once again in sight as a result: though the previous recent high around the 1540 level now represents near-term resistance which will have to be overcome."
The advisor notes that sector leadership has transitioned from "being on the verge of breaking down to staging an upside breakout of sorts/" He states, "A sizeable rally in the energy futures inspired a rally to new highs in the energy sector while the financial sector was able to stage a rally to just shy of new all-time highs, despite a sizeable increase in the ten-Year note yield."
Heading to Memorial Day, there's certainly no moratorium on the number of talked about potential deals. Receiving a fair amount of attention over the last few days include the companies below. There's more, of course, but hey, it's a three-day weekend.
This supplier of tools that makes microchips keeps seeing its stock move up. Up about 13% over the last few months. And it may be more than speculation that it will soon be acquired. Investors looking for a deal are snapping up equity calls, some are then selling them, and keeping both eyes on the stock price. Others are looking out to see which private equity firms or "strategic" buyers come calling.
As Alltel Corporation (NYSE: AT) goes, so goes Amdocs? Well, not quite. Yes the Alltel sale has pushed Amdocs' stock upward. Some say this maker of software products for telecom services firms may want to continue to go forward by themselves. But that hasn't stopped that list of potential buyers from being passed around. Best bet: International Business Machines Corporation (NYSE: IBM).
Again, here we go: Is it going to take a buyout? (Read: private equity buyer.) Or a miracle? (Read: new management) There are profit warnings. (Read: red flags everywhere) The stock is in miserable shape. (Read: cheap) Tough competition. (Read: Wal-Mart Stores Inc (NYSE: WMT)). Think there's a book to be written about all of this? (Read: who'd want to?).
Food for thought. Kangaroo Holdings wants to buy OSI Restaurant Partners Inc (NYSE: OSI). Not surprisingly, Applebee's stock goes up. Are they cooking up a sale price for themselves as they "evaluate" offers? You betcha.
Going, going...almost gone. Even we're beginning to tire of this one. But it never gets old if you like to watch. Now, they're canceling conferences. The CEO is selling shares. The CFO has a bad back. Come on! The latest product review - Palm Treo 755p - is terrible. Market share is going down the tubes. R&D? Forgetaboutit. Sound like a company on the go? Right. Right into someone else's lap. And to think what they once were. Great job all around, everybody.
International Business Machines Corp. (NYSE: IBM) opened at $105.84. So far today the stock has hit a low of $105.60 and a high of $107.70. As of 11:45, IBM is trading at $106.99, up $1.68 (1.6%).
After breaking its stride in February, IBM struggled to break resistance in the upper $90s throughout early spring. But has recently charged upward, hitting a new 52-week high today. Jim Cramer has changed his tune on the stock since discouraging investors in February and March, when he said that until the company replaced its CEO and came out with "breakthrough earnings," there was not enough potential. Now Cramer sees IBM as the next hot tech stock, after management spoke at yesterday's meeting of ramping up growth into percentages in the mid-teens. At 15 times earnings and with plans to beat projected growth by double digits, Cramer thinks IBM is going to soar – "easily" to $125, he says. Recent technical indicators for IBM have been bullish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $90 range. IBM hasn't been below $90 since October and has shown support around $94 recently. This trade could be risky if investors decide that the recent upward surge was just a mirage, but even if that happens, this position could be protected by its 200-day moving average, which is at 92 and rising, as well as the strong support levels between 90 and 95.
Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in IBM.
Answer: They are both required to wrestle a bear now and then ...(pronounced, rassle a bar).
I'm going on record right now. It is my opinion that the bear is stalking Wall Street. A big, nasty, ugly, smelly, sluggish old bear is lurking around the corner, and he's going to park his fat, furry butt right on the DJIA. I don't like it any more than you do, but as I've said before, I can't help but see what I see. I see very few bright glossy gadgets slated for release in the electronics/technology sector. I see retail sales flagging. I see hopeless attempts to prop up crude oil prices. I see home sales and construction in a blue funk. I see satellite communications saturated along with their associated markets. I see banks raising their service fees to augment flat-lined profits. I see managerial bloat. I see speculators scurrying to and fro trying to grasp a slice of any 6% or better spike. I see a Democratic Congress damning the consumer by trying to place an increased capital drag on energy producers, (yeah, tax the oil companies ... that'll help the little guy, you idiots). I think it's time to button up and hunker down with some of your hard-earned profits. I think it's time to lock into some value positions that portion of capital that you don't consider to be a gambler's share of your wealth.
Is there a bear market coming? I do most assuredly think so. I select a quote from Jim Cramer: "If you're in the market, you have to know there's going to be declines. And they're going to cap, and every couple of years you're going to get a 10 percent correction ... They're gonna happen. When they're gonna start, no one knows. If you're not ready for that, you shouldn't be in the stock market."
With concerns over recession, turmoil in the financial sector, fear of rising rates, high market volatility and a rising aversion to risk, many investors have been avoiding technology stocks. 
This post is one in a series on prominent company nicknames. 
In its previous two earnings reports, analysts have been pleasantly surprised by 
TheStreet.com's Jim Cramer says companies with great earnings might be worth a look.
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