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Monday, October 20, 2014

$ibm i hate you, but respect you

Since Ginni took over earning reports have been a cluster fuck. Disappointment after disappointment, which I hate. But what i keep respecting, is Ginni's no-back-down taking-responsibility approach. She does not hide, does the right thing (however much a pre-announcement fucks with my trading) and tries to answer the obvious questions. 

IBM is now at a two year low, with a multi-year low trailing multiple.

Few differences from the last time the stock was trading under such conditions:

1. EPS was growing. Currently, eps is declining.

With a declining eps, earnings and revenue there is really no justification for a market normalized PE. A lowend PE is justified.

2. Proper financial engineering is meant to make cash productive, creating a higher premium to the stock. Leveraging the obvious supply / demand dynamics caused by a lower float but a demand, caused by solid fundamentals needs to exist. Even management knew this quarter was a bust, and probably the next few quarters will be too, because there was negligible buybacks last quarter. 

If the stock is going to trade at a lower multiple range (10.5-12), then IBM could trade between 163-180. This range is also supported by the monthly chart highlighted above.

The biggest differentiater IBM has going for it is the incorporation of Watson, and how it could be leveraged within the cloud, mobile and enterprise. But for now, IBM is a show me story, worthy only of trades from extremely oversold conditions.

Friday, October 17, 2014

Market reacts $spy

Good news:

1. Affirmation of peripheral EU bond buying by ECB.

2. Whispers of PBOC liquidity injections into china banks.

3. Goldman tells the world there really is no oil glut.

4. Central bank officials, seemingly globally, suggested / leaked a dovish stance if economic conditions shift.

Blah news:

1. The talks between Ukraine and Russia led to no where. (Which would suggest further economic weakness from Germany and the EU.)

Thursday, October 16, 2014

$goog slower growth

They missed. Android has yet to prove itself, financially. (At least against the cost of subsidizing an OS for all OEMs.) 

Taxes have been steadily increasing to more normal levels. (Considering this is the main reason they beat the last few times beats took place.)

Growth has obviously slowed. Questions still remain as to how long the high multiple will remain. If a reversion to mean is taking place, goog will see a trailing multiple of 24-26. 

Technically, there is horizontal support in the low 500s. Although the longer-term 50sma (from weekly) trend was broken. 

On the monthly, if 500 breaks, settling near the 38sma makes sense. And corroborates with the trailing multiple reverting to the mean. 

$gs chart

They crushed the last few quarters. If estimates hold, GS should be at 180 by year end. Looking for entry near 165.

Wednesday, October 15, 2014

Mrs Market, wtf?!?

The last time the market started to test the 320-360sma support, the EU was at real risk of collapsing. 

There are always concerns in the world. Currently we face severe threats of Ebola and IS. But these major society concerns, not financial concerns, that will have limited effect on economic conditions. The major financial concerns are:

1. China slow down. (But the central bank head re-confirmed his thoughts on hitting the target GDP rate.)

2. EU slow down. (Mostly tied to Russian sanctions. Real society effects, that can hit economies are the very high youth unemployment in the EU. Fiscal policy changes must act on this. Does it merit 9% decline in US markets? Questionable.)

3. Russia. (When they decide to stop being bullies, oil will probably stabilize.)

Anyway, I thought we bottomed te other day. So today I am more of a bull. 

Monday, October 13, 2014

Market Thought... bottom

Serious concerns:

1. Ebola headline risk

2. IS continued advances

3. Russia (which facilitated the Germany slowdown)

Projecting earnings through December we can see at current SP500 levels, the market will have a multiple of high 16s. The market is either discounting lower earnings or being inefficient. 

The market conditions were the same as they were a month ago: low rates, decent earnings, robust US economy. The difference, fear has allowed the market to correct. 

Saturday, October 11, 2014

$ibm higher margins

Jefferies downgraded IBM Friday morning. However, Infosys reported solid numbers too. Suggesting IBM may do the same.

IBM's strategy, during their transition, has always been to carve out higher profits while sacrificing some revenue. This concept is a few years old, so when I see a downgrade on this very premise, I question the validity of the analyst and firm. This is shown by the year-over-year increase in gross margins.

The biggest knock on IBM was their previous cloud strategy. It cost them the CIA contract and highlighted a weakness of scalability. In response, management acted quickly, and brought on board SoftLayer. Key takeaway is that management knows how to readjust and reposition despite an established game plan. Since then, we find Watson in the cloud with a bunch of interesting APIs, and an Apple partnership. And the fact that the number of diluted shares keeps decreasing, while gross margins increase and eps rises, doesnt hurt either.

(March 2014 for earnings and eps includes onetime charges.)