There's opportunity in the hybrid cloud enterprise space. If IBM (IBM) is truly championing that area as its turnaround, I'm cautiously optimistic.
There's no upside to fighting Amazon (AMZN) , Alphabet (GOOGL) , and Microsoft (MSFT) as cloud providers. IBM has too much legacy, too much weight, to do so. It's not as nimble on the innovation front and with the huge $34 billion acquisition of Red Hat (RHT) I see it as pot-committed to the hybrid side of the equation.
The good news is this is a space where IBM can compete, even using its name. Furthermore, there are much smaller names in the space it can acquire at a reasonable cost to maintain strong growth.
With free cash flow of $12 billion expected in 2019 along with earnings per share of $13.90, there may be some opportunity to expand. IBM can leverage the hybrid cloud along with its AI, analytics, and cybersecurity to create a core underpinning that neither Amazon nor Alphabet will likely compete with. There are a number of niche places in each of these categories, but IBM should have the opportunity to hold itself out as the all-in-one hybrid provider over the next several years.
Unfortunately, gone are the days of huge growth and even the servicing business has lulled. Therefore, IBM will continue to trudge as a value play with potential spinoff upside, low expectations, and a big dividend payer. I believe it can fit well into a blended portfolio although I'm likely to take the 5% dividend and buy smaller growth names in the tech space.
In fact, I'm almost of the notion to buy smaller IBM competitors with the thesis either IBM will buy them, a competitor will buy them, or if IBM stumbles, it is because of competition. Think of it as a hedge with upside. I would veer small, though, as big names will be influenced by the overall market and world economies in a similar manner as IBM. The idea is to minimize correlation.
And whether you believe in blockchain or not, IBM will be a player in the space. This may goose the shares a bit should we see a resurgence in crypto or a better understanding of the technology (blockchain, not crypto) in the markets. I wouldn't base any decisions on this, but it's worth noting as something to keep in the back of your mind.
With the stock up by $10 Thursday, IBM is tough to chase, but that doesn't make it a short. Bulls pieced together a somewhat ugly "W" pattern heading into this week (see above), so the push from Wednesday's earnings have triggered a breakout.
IBM will likely hit resistance just below $140, hence the hard chase comment. That being said, strong support should come in via the $125-127 corridor. This is where I would look to dip my toes into IBM.
Should IBM continue to push higher, then I would watch that resistance line around $140. A break above should squeeze another $10 and may be worth a trade. I would be more keen on a rejection below $140 and a pullback to the uptrend.
While I've had my doubts about IBM for a while, I'm beginning to believe in the turnaround story here. One quarter doesn't make it so, but it does warrant attention.
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