When the markets fell 400 points on Tuesday, the after-hour spike action in IBM (NYSE:IBM) stock was refreshing. The rally continues this morning as it is up 8%. Don’t get too excited because this is the extent of my enthusiasm on the stock in 2019. I apologize in advance to the uber fans of IBM stock. Keep in mind that today I am judging the stock from a long-term perspective not the short-term bounce.
My dislike for IBM stock is nothing against those who still believe in it. I am just not very patient when I see the same story for years on end. For a trade and for those long IBM stock, I’d say to stay in it. But for deploying new money I can find better candidates.
Technically, there are short-term upside targets all the way to $142 per share. But that was a major pivot point and to get to that point, the stock would be slicing through the 25% dip it suffered last October. This current spike clears IBM stock from its Christmas pit.
Wall Street analysts mostly rate IBM as a “hold” so there is the threat of positive upgrade headlines to help add fuel to the rally, but I am just not sure that this earnings headline was the right catalyst for it. Nevertheless, IBM price is still well below their average price of $142 per share.
The easy money has been made on this bounce. From here IBM will need the help of the general markets. Today, my caution on IBM stems from the long-term relative performance versus the market. Simply stated, if IBM is rallying then the markets in general are also higher. And I prefer to risk my money somewhere else.
Before you send hate mail, consider the fact that coming into its earnings, IBM was trading at the same level that it traded in 1999. I don’t care what the excuses are, compared to other names like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Microsoft (NASDA:MSFT), you see the point I’m trying to make. There are better places to risk my money than IBM stock.
Last night management delivered a decent earning report, but they barely beat expectations. The CFO sounded very enthusiastic over their outlook, but they raised guidance by a mere four cents. The cloud growth was only 12% and their strategic imperatives were up only 9%.
While these are still positive steps, the ship is turning too slowly and even Warren Buffet got tired of waiting. I am not smarter than him.
While there are some setbacks in cloud, the CFO noted their excitement about their position in the hybrid-cloud, especially with their acquisition of Red Hat (NYSE:RHT). Therein lies another potential can of worms. The arbitrage between the acquisition price and current RHT stock price is too large for comfort. RTH stock is still trading $15 below the deal price. That is too wide margin for arbitrage. Is the deal in jeopardy?
For the IBM fans… Yes, they did beat expectations. But a $0.04 raise for 2019 is not worth a 8% spike in the stock. This is not a management team that deserves more benefit of the doubt. They have been promising a turnaround of massive proportions for years. Maybe this is the actual beginning of it but it’s not for me.
The Bottom Line for IBM Stock
I see IBM as a show-me-don’t-tell-me situation. To compare it to momentum stocks like Amazon, IBM is definitely a slacker. If I compare it to another stock that slacked for years, MSFT has turned itself around markedly and is now the largest company by market cap.
So whatever way I slice it, the IBM report did not give me the green light to go all-in. For a trade, I would stay long it into the resistance at $142. I cannot fault anyone for trying to trade the upside here in the short-term. But keep in mind that this may not be the bottom of the stock in the long run. And IBM’s success will likely be market dependent for the next few months. Beyond that, the onus is on management to show real growth… not just pennies.
Click here for a bonus video on Apple (NASDAQ:AAPL) stock. This is a wild one but there are clues. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.