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Tuesday, July 20, 2010

Com'on Cramer...

Cramer gave his two cents into IBM's decline. (video/article) While listening to his thesis of over-promising-and-under-delivering, I could not help but think, 'Are we that desperate to find a reason for a market move?'

His thesis may hold some merit, however it is a purely subjective thesis. When we look at the stock objectively, the numbers for IBM simply do NOT corroborate his thesis. Here is the break down...

1. IBM has consistently traded with a trailing PE between 12-13 post Lehman credit freeze.

Since May 12th (analyst day), the stock popped due to the '20EPS in 2015' announcement reaching the high-end of the channel it has been consolidating at (for 9 months), and has come down testing its low 120 support shortly there-after. Since the projections, not once has the trailing PE exceeded 13.

Does this wreak of a stock with high expectations? To me, the action says no. I would at least expect the trailing PE to reach 15 if that were the case.

2. The intra-day chart for IBM paints a different picture then the closing price for IBM.

Although the strong initial decline, intra-day gained strength with the market turnaround.

3. The dollar move was fairly intense this quarter (03/31-06/30). From trough-to-peek swinging approx. 13%. So to say 2% (500M/23.7B) of revenue was affected is not a stretch.

4. IBM's management is arguably the most transparent large cap tech company, maximizing their cash/cash flow. They do not let cash sit on their balance sheet, and they tell you exactly what they are going to do. And they do it.

5. Across the current market tape, solid earnings beats have been met with punishment of the stock. (Intel as an example.) Today was the only day since earnings market psychology acted differently.

Management accomplished and surpassed their projections to 2010, and they simply gave investors new projections for 2015. Maybe institutional investors got carried away, and were secretly expecting more from IBM for the quarter. But the stock certainly did NOT trade like expectations were high after May 12th.

When we look at the situation objectively, via the above, at best the stock got crushed for producing a modest quarter to IBM's own road map to 20eps-in-2015, and got knocked for it. With this bipolar market tape, that is the most likely scenario.

This does not call into question management's credibility, and Cramer makes a big leap from the data to come up with that conclusion.

(His leap is no different then me stating that his opinion is derived from conversations with a few institutional investors, and he is merely repeating their thesis. No proof or measurable data to support the claim, but a hunch that calls his credibility into question.)

Then again, he can simply be talking his book as he owns Accenture, and he wants people to sell IBM. I too can be talking my book as I own IBM (but I am not telling anyone to sell Accenture :). Regardless, I am just trying to view it objectively.

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