The Dow Jones Industrial Average closed at all-time highs just two days after the election, and one of the stocks leading the way was International Business Machines Corp. (NYSE:IBM). After dipping to $151 in early trading on Wednesday, IBM stock went on to gain more than 6% through Thursday’s close. I’m sure that surprised more than a few investors after IBM’s earnings a little over three weeks ago.
The company reported third-quarter results on Oct. 17, surprising the Street with better-than-expected numbers on both the top and bottom lines. Revenue of $19.23 billion bested estimates of $19 billion, and while adjusted earnings of $3.29 a share topped expectations for $3.23 a share, they were down from $3.34 a year ago.
Why IBM Stock Can Keep Up
The quarter represented the smallest earnings-per-share decline in four years, which should have been celebrated by the market. Still, management didn’t hike guidance, maintaining previous forecasts for 2016 EPS estimates of $13.50, and the shares fell 2.5% that day as a result.
It’s no secret that Big Blue has been underperformed under current management, and once again it seems they couldn’t please Wall Street with its cloud business, even as it grows at a brisk pace. The report seemed to give the shorts their opening. In fact, I’ve found they feed off IBM stock every earnings report with the regularity of a crocodile at the Serengeti river migration.
But despite the ongoing frustrations with management, who have the means to jump start the cloud business in a more meaningful way, I continue to see amazing value in International Business Machines.
In fact, I called IBM stock out as a screaming buy after earnings and look where it is now. After trading between $150 and $154 for the latter part of October, the shares took off with the market in the days leading up to and following the election. They’re International Business Machines is just 3% from its 52-week high.
I also like that IBM stock is back above the 200-day moving average (the blue line), which had been acting as resistance since a pullback in September.
Going forward, one of IBM’s main focal points will be the Internet of Things, which is a market that’s expected to triple over the next four years.
International Business Machines is establishing itself as a leader, and it’s also making a huge bet on Watson (the artificial intelligence platform) to be more than just a pretty good Jeopardy player and to become a major force in “cognitive computing” as well as the cloud space.
It all comes back to management, and I think the company now understands it needs to step on the pedal in remaking this tech giant. I believe they can do it, and while we hang on for the IBM stock ride we get to collect a nice 3.5% dividend.
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