IBM Continues to Make New Highs

International Business Machines Corp. (IBM) is on a tear this month hitting a new 52-week high Wednesday as Hewlett-Packard (HPQ) purchases Electronic Data Systems (EDS) in hopes of making up some ground on Big Blue. HPQ sold off earlier this week on its announced purchase of EDS but was performing well itself before the announcement. This should be a good opportunity to purchase HPQ as it moves from its current price of $46 back up to $49 where it was on Monday.

But the real story is IBM, up from $124 earlier in the month to a new intra-day high of $128.83. The story yesterday was work IBM is doing with Research in Motion (RIMM) to provide Web 2.0 technologies to Blackberry customers. Yet there are many good reasons to be long IBM in a recovering domestic economy plus the vast foreign businesses that they operate in.

The $125 and $130 May Calls were busy yesterday outpacing the Puts by a 10 to 2 ratio in the front month. You could purchase the stock at this level or purchase some three to four month out Calls. The stock is prices at 16 trailing earnings with 26% EPS growth, year over year.

Analysts are expecting more good news from the developer and manufacturer of information technologies in a wide assortment of industries. They have raised their expectations for the current year from 8.22 earnings per share 90 days ago to 8.54 earnings per share in the most recent week.

Disclosure: None

Comments

[DeaverB]

Hertz benefited from the Avis push, Try Harder. IBM should benefit from EDS now being part of HP, having one major competitor as opposed to two smaller ones. Gives IT managers a real option. Should promote business for both sides, a la Hertz and Avis.

[CrossProfit]

DeaverB,

Very interesting point, well said.
Only four months ago IBM was trading around 97 and most articles were bearish. We were not.
See:
www.crossprofit.com/vi...

We maintain our primary analysis regarding IBM; growth through acquisition. The latest HP acquisition is in fact an attempt to mimic the IBM formula that so far has worked well for IBM.

CrossProfit