Stock to Sell #2 – IBM (IBM)
“Big Blue” is the bluest of the blue-chip technology giants. Its global capabilities in information technology, software, computer hardware and related financing make it a household name. But IBM (IBM) is a company in full maturity, so future growth must result from strong trends in emerging markets, improved profitability in its more developed markets and cloud computing.
S&P expects a 4% decline in revenues in 2013 and earnings of $16.91 per share, down from an earlier estimate of $17.38. It estimates earnings of $17.89 in 2014, but that is uncertain until management can demonstrate improvement in the lagging areas.
I noted in November, with the stock just below $180, that it had topped near $215 in May, beginning a series of declines that created new lows after rallies failed to penetrate the overhanging 50-day moving average.
In October, the stock broke to a low at about $173 on a high-volume continuation gap. A subsequent reaction rally closed that gap but failed to hold above its 50-day moving average, now at $182.
Traders should sell IBM short with a downside target of $170 and a stop-loss at $187. Long-term holders should protect their positions with defensive options strategies.