What To Do With IBM?

I’m really up in the air about buying clients into IBM (IBM) (one owns the stock already). The stock’s upside its very solid. I forecast IBM going from under $200 to $250 this year, and $276 by next year. IBM is a company that can grow profits 10% to 12% per year and also pay its investors around a 2% dividend. That’s worth 15 times earnings to me — and the stock currently sells for around 11 1/2 times earnings. That’s huge upside.

The problem is revenues aren’t growing. At all. Sales were down 3% last quarter, yet profits increased 11%. IBM did $107 billion in sales in 2011 and is expectd to do $102 billion in sales this year. IBM does a swell job of growing profits without an uptick in sales because it buys back shares and it’s an efficient company. THe cutent regime is into pushing services more than hardware. But the “cloud” that IBM is getting more invovled with is also hurting the company because of others competing for cloud business — and also the fact that if you’re stuff is on the cloud you don’t need to buy a bunch of expensive hardware.

One Year Chart

I should be buying IBM around here. It looks like a buying opportunity on the chart. But something just doesn’t feel right. Conservative stocks are rallying this year, and IBM is not. Why? What’s wrong? Besides revenue growth.

Still, this company is growing in the low single-digits. That’s good. IBM isn’t getting enough respect.

Fair Value

Here’s my Fair Value on the stock. It should be $250. The problem is I feel it might take a while to get there. Conservative stocks were the rage during the first half of the year, now growth stocks are rallying. IBM is being left out.

Sharek’s Take

I’m going to wait and try to get into IBM at a better price. We have a had a huge rally in the stock market, and the last two days have shown signals the rally might be over. There’s other growth stocks I need to get before IBM. This stock stays at the top of my radar though, I could buy in any day.