Key Points
- IBM has a tendency to trade sideways for long periods.
- However, the chart from the last three years tells a different story.
- The uptrend is gaining momentum, which is exciting for investors.
- 5 stocks we like better than Amazon.com
IBM NYSE: IBM, or Big Blue as it’s known on Wall Street, is a tech giant that has a reputation for trading sideways. Despite being one of the oldest publicly traded tech companies, its shares have remained stagnant for long periods of time.
For example, after 14 years of being public, IBM stock was still at its IPO price by 1982 and again in 1994. Even during the Dot Com bubble in 1998, investors could have sold their shares for the same price in 2008.
Currently, IBM stock is trading at 2015 levels, showing a pattern of little movement over the years.
However, if we look beyond the surface, there are signs that a new IBM is emerging. The team at JP Morgan recognized this over the summer.
Technology Transformation
Analysts noted that IBM’s transformation efforts were gaining steam, and the rise of artificial intelligence (AI) as a thriving industry was providing a tailwind. IBM completed the spinoff of its managed infrastructure services business Kyndryl, resulting in a significant shift in its revenue profile. Now, more than 70% of its revenues come from its high-growth software and consulting business, making it more like Amazon.com, Inc’s and Oracle Corp’s.
Although there is still work to be done to convince Wall Street that a new IBM is here to stay, the company is determined to change its stock performance and catch up to its peers. Analysts have taken notice.
Bullish Comments
RBC Capital recently initiated coverage on IBM stock with an Outperform rating. Analyst Matthew Swanson and his team were impressed with IBM’s software platform, which they consider a strength. As networks become more complex, IBM is well-positioned to benefit from this trend.
Swanson’s price target of $188 indicates a potential upside of 30% from the current share price. Achieving this target would mean breaking out of the 10-year range that IBM has been stuck in.
Additionally, IBM is currently considered an affordable investment opportunity. Jim Cramer mentioned this on CNBC and stated, “IBM is very inexpensive, so you can bet that it’s off to the races.”
Technical Setup
Since May of this year, IBM stock has risen 25% and is nearing its highest levels since 2018. This rally has been ongoing since 2020 and shows signs of a strong uptrend. While it may not have seen the same triple-digit gains as some of its tech peers, IBM’s rally has been consistent and characterized by higher highs and higher lows, indicating the potential for a sustained rally.
Shares need to surpass last December’s peak to confirm the next leg of the rally, but they are only 4% away from that level. Investors will also benefit from IBM’s attractive dividend yield of 4.5%.
While Amazon.com currently has a “Moderate Buy” rating among analysts, top-rated analysts believe there are five stocks that are better buys.
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