Each week we highlight the results from different technical trading methods. We also provide contrast from a fundamental analyst. It is always interesting when we find a pick where multiple methods agree. This week, two different approaches choose IBM.
Review
Our last Stock Exchange featured multiple stock ideas from our group. That is normal with widely varying methods. The group consensus on NVDA two weeks ago was a rare situation.
The lack of consensus is not a negative market sign; it is business as usual. Attractive trades normally vary according to your approach.
Let’s turn to this week’s ideas.
This Week— Time to Buy the Dip in IBM?
IBM has attracted a lot of recent interest. The recent earnings report was a “beat” but a miss on revenue. Analyst downgrades followed. A couple of weeks later, there was news that Warren Buffett, a major stockholder, had sold about 20% of his position. This took the stock down further. Many complain that the company earnings do not come from organic growth, but result only from “financial engineering”. Others question the business model.
This provides an interesting backdrop for Holmes, who is buying the dip.
Holmes: IBM’s two-and-a-half-month slide has brought it down to a very attractive price. We’re currently trading around pre-November levels, a remarkable bargain. Let’s check the chart:
Jeff: In today’s introduction I explained the background of the recent losses. Revenue. Financial engineering. Mr. Buffett sold 20% of his stake?
H: Who is Mr. Buffett? I just go by the charts. If he is an expert, doesn’t it make more sense to think about the 80% that he kept? I think a rebound to the 50-day moving average is quite possible.
J: Perhaps. It happens that I also hold IBM in one of our other programs – the one where we enhance yield by selling near-term calls.
H: So, you agree that the dip is worth buying?
