I’ve been a long-time bear on International Business Machines (NSYE:IBM) stock. Not because I thought IBM stock was doomed to fail and head lower. Rather, because IBM stock couldn’t escape its slow-growth narrative, and the inability to do that consistently resulted in a sideways stock.

Indeed, over the past year while I’ve maintained a bearish stance on IBM, the stock has bounced, dropped, and overall made zero gains. A year ago, this was a $150 stock. Today, it’s still a $150 stock.

But, I’m inclined to ditch my bearish stance for the rest of 2018. Fundamentals imply that this stock has another 5% upside to fair value by the end of the year.

Plus, positive sentiment appears to building for IBM, and as we all know, positive sentiment can often drive stocks above their fair values. As such, I realistically see IBM rallying 5% or more over the next several months.

Those aren’t big gains. But, they are good enough to make IBM stock a buy here, considering downside is limited by what is already a depressed valuation. Long-term, I still think IBM isn’t all that interesting. But, near-term, the value prop is favorable for a multi-month trade.

The Problems with IBM

The problem with IBM is that this is a slow-growth business with a slow-growth valuation. In other words, valuation matches growth, and when valuation matches growth on the low-end, you usually wind up with a stock that doesn’t go anywhere.

Bulls want to buy it because it’s cheap. Bears want to sell it because it’s cheap for a reason. This dynamic persists until bulls throw in the towel, or bears are proven wrong by a strong quarter.

This is exactly what is happening at IBM. At its core, IBM is broken into two segments: Strategic Imperatives and everything else.

The Strategic Imperatives business, which is driven mostly by cloud solutions, is doing quite well. But, it isn’t doing well enough for investors to completely ignore the fact that the company’s legacy business is in major retreat. Overall, revenues rose just 2% last quarter. That is anemic growth, and it explains IBM stock’s anemic valuation at 10X forward earnings.

Bulls are saying that robust cloud growth will power bigger growth rates in the foreseeable future. Those big growth rates will power big profit growth and multiple expansion, providing a double tailwind for IBM stock.

But, bears point out (and correctly so) that tailwinds for the cloud business are slowing (cloud market growth rates are expected to moderate over the next several years and fall to 16% by 2021). Thus, bigger growth isn’t going to happen anytime soon, and IBM stock deserves to trade at 10X forward earnings.

Thus far, the bears have been right. IBM stock hasn’t gone anywhere over the past year or past three years, and is down big in a five year window. These bears will be right in the long run, too.

Cloud growth will moderate, and when it does, IBM won’t have much to fall back on. That reality makes the current 10X multiple seem reasonable, and further makes dreams of $200 prices within the next year seem highly unlikely.

Why the Bull Thesis Looks Better Now

Although I’m long-term bearish on IBM, there are reasons to believe that bulls will have the last laugh in 2018.

From a fundamental standpoint, I view IBM as 1-2% revenue grower over the next several years, powered by cloud growth. Gross margins are still falling. But management’s focus on cost-cutting is allowing the company to stabilize pre-tax margins through big opex cuts.

These opex cuts can’t last forever, but they do create a pathway for pre-tax margins to get to 20% in five years (versus 17.5% last year).

That combination of 1-2% revenue growth and 20% pre-tax margins leads me to believe that IBM can do about $17 in earnings-per-share in five years, after factoring in buybacks.

The market trades around 16X forward earnings, but the market is also growing earnings at a 16% clip. IBM is growing earnings at a far slower rate, and as a result, IBM stock has historically traded around 10X forward earnings, with a five-year high forward multiple of about 12.5.

A 12.5 forward multiple on $17 implies a four-year forward price target of just over $210. Discounted back by 10%-per-year, that equates to a year-end price target for IBM stock of $160. That is 5% higher than the current price. Thus, fundamentals support a 5% rally into the end of 2018.

But, there is also reason to believe IBM will rally more than that. Positive sentiment is building on this name. Not only are analysts upgrading the stock, but investors are buying in bulk, too.

For the first time since early 2018, IBM stock has broken above its 200-day moving average. The stock has done this twice over the past three years. Both times, the rally in IBM stock extended way above its 200-day moving average.

In other words, it looks like positive sentiment will push IBM stock above fair value by year-end. That means this stock could see prices north of $160 before the year is out.

Bottom Line on IBM Stock

IBM has been and will remain plagued by slow-growth. But, that doesn’t mean this stock won’t bounce higher every once and a while due to attractive fundamentals converging on bullish technicals. That is exactly what we have right now, and I consequently think IBM stock can rally into the end of 2018.

As of this writing, Luke Lango was long IBM.