Featured Image

What's Happening

International Business Machines ( IBM ) will report earnings January 18. Analysts expected earnings of $5.17 a share, up from $5.01 during the same period last year. Shares of IBM gained 6.7% since the start of July.

Technical Analysis

IBM was recently trading at $164.20, down $18.59 from its 12-month high and $25.07 above its 12-month low. Overall technical indicators for IBM are bullish and the stock is in a weak upward trend. The stock has recent support above $156.50, and recent resistance below $165.00. Of the 20 analysts who cover the stock, four rate it a "strong buy", two rate it a "buy", 11 rate it a "hold", and three rate it a "strong sell". IBM gets a score of 40 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

IBM has had a rough go of things in recent years. The company has posted year over year revenue declines each of the last 22 straight quarters, but that streak is expected to end this quarter, and could be the catalyst the stock needs to make a meaningful run higher. Analysts forecast revenue of $21.94 billion, which would be an increase from last year's $21.8 billion The company has done a good job posting better than expected profits due to deep cost cutting measures including big layoffs. Despite the earnings beats, the stock has remained under pressure due in part to investor fear over the company's inability to grow sales quick enough in cloud and artificial intelligence services to overcome sales declines in its other sectors. The stock is currently in a weak upward trend, and if sales do show year over year growth, the stock will likely trade higher. IBM has a low P/E of 13.7, and earnings are forecast to grow a modest 2.34% a year over the next five years. Analysts have an average price target of $166.71 on the stock.

Stock Only Trade

Stock-only trade: If you're looking to establish a long stock position in IBM, consider buying the stock under $164.25. Sell if it falls below $148.00 or take profits if it gets to $189.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider an April 135/140 bull-put credit spread for a 30-cent credit. That's a potential 6.4% return (23.8% annualized*) and the stock would have to fall 14.6% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an April 185/190 bear-call credit spread for a $0.40 credit. That's a potential 8.7% return (32.4% annualized*) and the stock would have to rise 12.9% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a April $165.00 covered call. Buy IBM shares (typically 100 shares, scale as appropriate), while selling the April $165.00 call for a debit of $158.10 per share. The trade has a target assigned return of 4.4%, and a target annualized return of 16.4% (for comparison purposes only).
Originally published on InvestorsObserver.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

Related Articles