Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Investors Should Avoid IBM

Companies / Tech Stocks Apr 29, 2015 - 12:47 PM GMT

By: Money_Morning


Michael A. Robinson writes: Over the last two years we’ve talked many times about how to make money on high-tech stocks.

Nearly all of our talks have focused on finding winners that offer a lot of upside. As I’ve been telling you, the road to wealth is paved by tech.

But that doesn’t mean you can blindly invest in just any tech stock. To ensure that you make money in the long run, you must avoid losses in the short run.

Today, I’m going to show you how to protect your portfolio’s value by dodging stocks with loser written all over them.

Specifically, I want to talk with you about a mega-cap tech firm that you need to steer clear from.

In fact, this firm violates a key rule of my five-part wealth-building strategy…

Big Black and Blue

I have read numerous stories about the turnaround underway at International Business Machines Corp. (NYSE: IBM) over the last several years.

There was another spate of positive stories last week after IBM reported first-quarter results that beat Wall Street’s earnings estimates.

While I’m glad to see the company making progress, I still see a lot of problems ahead. After all, the first quarter also was the 12th consecutive one in which IBM suffered an annual sales decline.

Even if IBM is able to lower overhead and boost earnings per share, that’s still not a recipe for long-term success. See, there’s an old saying in turnaround investing…

“You can’t cut your way to growth.”
I know this area well, having served as a strategic advisor to a turnaround investment banker. I’ve seen firsthand just how much money you can make on turnarounds – if you pick the right one.

IBM is not the right one.

Virginia Rometty has spent her entire three years as IBM’s CEO trying to right a listing ship.

And she has made some good decisions, like getting IBM to focus more on Big Data. That’s a new field that involves using massive computing power to comb through mountains of raw data to find key patterns, such as spotting online fraud among billions of e-commerce transactions or improving efficiencies at warehouses and factories.

Rometty also has steered IBM more toward cloud computing, a trend in which vendors host data and applications for their clients at remote server “farms” and deliver it all over the Web.

But over the past two years, these moves have not paid off for IBM’s investors. Even after IBM rallied on a first-quarter win, the stock is still down 11% during those past two years.

That decline is even worse that it appears. During that same period, the Standard & Poor’s 500 Index gained 33.5%.

And the comparison with the S&P is being kind to IBM.

Had you focused on just a few of the high-tech winners I’ve brought to you here at Strategic Tech Investor, you would have crushed the overall market’s returns.

Just look at video-processing chipmaker Ambarella Inc. (Nasdaq: AMBA), which I first recommended in August 2013 – and a member of our Million Dollar Tech Portfolio. Over the past two years, it has advanced 437%, or 13 times more than the broader market.

For those of you who prefer the safety and liquidity of big-cap firms, compare IBM to Apple Inc. (Nasdaq: AAPL). In the past two years, the iDevice King, which I brought to you in October 2013, has advanced 120%.

The Rule Breaker

IBM’s subpar performance over the past few years stems from the fact that it violates Rule No. 1 of Your Tech Wealth Blueprint – “Great companies have great operations.”

And those great operations almost always starts with leadership. Based on the track record I’ve seen to date, Rometty clearly is not the right CEO to return IBM to its glory days as a true innovator.

In no small measure, that’s because she’s spent her entire career at Big Blue.

In my experience with turnarounds, it’s rare to see a “lifer” get a big firm like IBM back on track. That’s because up-from-within executives grew up in a culture that is a big part of the problem in the first place.

Usually, a senior internal leader lacks the kind of outsider’s perspective needed to turn a laggard back into a leader.

To be fair, some areas where the embattled leader is making progress.

The Wall Street Journal recently ran a long analysis about Rometty’s tenure, which noted that she has spent about $8 billion over the past three years buying about 30 companies in her targeted growth markets.

On paper, it looks like she’s making progress.

For instance, Big Data, cloud computing, cybersecurity, social networking and mobile technologies made up 27% of IBM’s sales last year, compared with 15% the year before Rometty became CEO.

But as the sales mix has definitely improved, the overall revenue outlook looks bleak. During Rometty’s tenure, she has yet to deliver a single quarter in which overall sales improved from the year before.

And yes, she has gotten a vote of confidence from famed investor Warren Buffett. His Berkshire Hathaway Inc. (NYSE: BRK.B) is IBM’s largest shareholder and just increased its holdings from 6.3% of shares outstanding to 7.8%.

But I believe Buffett’s IBM involvement points up two key questions every tech investor should consider before taking a chance on this stock: What share price makes sense, and what is the appropriate time horizon?

Given IBM’s weak sales picture and market-lagging performance, I would only consider buying at what I call a “stupid cheap price,” one so low that you can afford to take a flyer.

I wouldn’t pay more than $150 a share, a 14% discount from today’s opening price… and then only if I could afford to hold it for many years, such as in a retirement account.

After all, I’ve clearly demonstrated that IBM isn’t a true growth stock. It’s not even a good foundational play that you can count on to give your portfolio solid support.

And it’s not really a great special situation play, either.

In other words, until the situation with IBM dramatically improves, I suggest you avoid this stock and focus on tech winners that offer a lot more potential upside.

I’ll be telling you more about those kinds of tech stocks in the days ahead.

P.S. I hope all are “Liking” and “Following” me at Facebook and Twitter. We’ve got a great community of friends, colleagues and readers there who are eager to make big money in tech stocks today.

Source :

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in