Why Big Blue Won't Bounce Anytime Soon

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of IBM (NYSE: IBM  ) slipped 1% in early Monday trading after Barclays downgraded the IT services gorilla from overweight to equal-weight.

So what: Along with the downgrade, analyst Ben Reitzes lowered his price target on the stock to $190 (from $215), representing just 3% worth of upside to Friday's close. IBM shares have slumped in recent months on sluggish demand, but Reitzes believes that strong IT headwinds -- specifically the growth of cloud computing and software-as-a-service (SaaS) -- will continue to work against the stock.

Now what: Barclays expects the market to value IBM on cash flow more than earnings until it can show some solid revenue growth. "The mainframe 'catalyst' has passed and positive benefits from analytics seem to be offset by secular shifts to SaaS and Cloud, which seem to adversely impact all of IBM's segments in some way," noted Barclays. "We have recently performed several surveys that show the disruptive impact of cloud and SaaS are only in the early innings and are set to be more disruptive in 2014 for our whole sector." With IBM shares hitting a new 52-week low today and sporting a 2%-plus dividend yield, however, Mr. Market might be providing long-term investors with a solid blue-chip income opportunity.

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  • Report this Comment On October 07, 2013, at 12:43 PM, Momintn wrote:

    IBM is on target with $6b a year in R&D, $4b in SaaS Cloud, and recent acquistion of SoftLayer, the world’s largest privately-held cloud infrastructure provider. Headquartered in Dallas, Texas, SoftLayer serves approximately 21,000 customers with a global cloud infrastructure platform spanning 13 data centers in the U.S., Asia and Europe.

    Be assured that IBM will grow cloud revenue just as fast as the industry if not more so. Accumulate IBM on weakness for the long-term. Buying stocks that are out-of-favor, especially like IBM, will reward you greatly in the future.

    Buying bubble stocks like Tesla are only setting yourself up for losses.

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9/23/2016 4:01 PM
IBM $154.98 Down -1.13 -0.72%
IBM CAPS Rating: ****