IBM Earnings Are Very Encouraging

| About: International Business (IBM)


IBM exceeds expectations.

Purchasing spree gives confidence in company's direction.

Valuations and technicals are solid.

As Mark Twain famously quoted: "The reports of my death are greatly exaggerated."

The earnings are in! International Business Machines (NYSE:IBM) has finally reported better-than-expected earnings! Excluding charges, IBM reported $3.29 vs. expectations of $3.23 per share. Cloud revenue grew 2.4% to $8.75 billion during the quarter.

"We'll continue to run the business of consulting as we always do, but the consultants will help train and put the wisdom and knowledge of that understanding into Watson," said Bridget van Kralingen, senior vice president of IBM Global Industry Platforms in an October 18 interview. This is the company's strategy, and it is starting to work. IBM reiterated its annual forecast of $13.50 a share.

IBM has bought 12 companies in 2016 by spending over $5 billion. This is impressive!!! Compare it to last year - less than $1 billion. Those purchases will not improve the earnings immediately, but based on the list below, they will in 2017 and 2018. Here is the list:

November 3, 2015

Gravitant, Inc

Cloud brokerage software and cloud management

November 6, 2015


Object-based storage software

December 8, 2015


Cloud-based video management

January 15, 2016

Iris Analytics

Real time transaction fraud detection

January 21, 2016


Streaming video

January 28, 2016


Digital marketing and creative agency

February 2, 2016

Aperto AG

Digital marketing and creative agency

February 3, 2016 AG

Digital marketing and creative agency

February 18, 2016

Truven Health Analytics

Provider of cloud-based healthcare data, analytics and insights

February 29, 2016

Resilient Systems

Cyber security, incident response platform

March 18, 2016


Specialist provider of Microsoft Dynamics CRM based solutions and associated services to the public sector

March 31, 2016

Blue Wolf Group LLC

Salesforce systems integrator and professional services

Click to enlarge

The most important purchase, in my opinion, is Truven Health Analytics. Let's call it "right place right time."

IBM is not the most exciting stock, but it's beginning to look like this century-old company is becoming a turnaround story. By the way, its P/E ratio is 12.50. Considering that the worst is in the past, the company's P/E relative to the average P/E of S&P 500 looks rather attractive. In other words, the risk / reward scenario is shifting towards reward. I think the stock belongs to the long portfolio.

Let's shift gears to charting. IBM is currently trading above two important support levels:

146 represents 200-day moving average

141 represents triple bottom.

Click to enlarge

No, it is not a bargain at 120 anymore. Oh well. It is a solid stock at 150, which I would like to have in my portfolio. Notice the ratio of IBM vs. SPY. It is stable. This tells me that the stock will go down only if the market corrects.

I noticed the stock was down to 150 after hours. I believe this is a good entry point, or, as a minimum, a point where one would start to scale in.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in IBM over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.