IBM Turnaround: Old Resistance/New Support Suggests 52% Upside
Shares of IBM jumped 5% on news of a CEO change. Arvind Krishna replaces Ginni Rometty in April 2020. IBM seems to be following the footsteps of Microsoft in installing a CEO who is 100% cloud driven. Krishna was the leading force behind IBM's 2018 acquisition of Red Hat, and he's led the company in areas like artificial intelligence, cloud technology, and quantum computing.
A potential turnaround led by a management change is possible. Shares of IBM have lagged the broader tech sector enormously over the past decade, by more than 200%.
Looking at the chart below, IBM has recently bounced off of a key support level that dates back to IBM's dot com era highs: $134. As long as IBM holds that level, the stock looks ripe for a buy trade to its previous all time high of $217, representing potential upside of 52% from current levels. In technical analysis, old resistance becomes new support, and IBM's chart is a textbook example of that.
I am not a technology analyst. I know IBM has a lot of catch up to do in terms of gaining a foothold in the cloud and enterprise software. Can they pull it off? ¯\_(ツ)_/¯ But I think they have better chances of catching up with this new CEO vs. the old CEO.
The stock is dirt cheap, currently trading at a forward P/E of 10.3. Dividend yield of 4.74%. Based on patent issuance, the company has been investing for the future. I think IBM is worth a look based on its valuation and the stock chart having a favorable risk/reward profile [6% downside stop loss at $134/52% upside at $217 price target]
I think IBM is worth a look based on its valuation and the stock chart having a favorable risk/reward profile [6% downside stop loss at $134/52% upside at $217 price target]