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3 Reasons Why IBM Will Be 2014’s Comeback Stock


The list of awfulness is long. It seems almost no one has anything nice to say about IBM (IBM) any more, a fact which, in and of itself, could be seen as cause for a closer look. 

Officially, shares of “Big Blue” are in their own private bear market, having fallen 20% over the past nine months from an all-time high of $216 hit in March. In addition, the stock is now down about 10% for the year, giving it the dubious honor of being the worst performing member of both the Dow Jones Industrials (^DJI) and the mega-cap S&P 100 (^OEX). 

As a result, this enormous legend of I.T. has fallen seriously out of favor with Wall Street and has never been less loved by analysts. According to FactSet data, just 28% of analysts currently rate IBM a “buy” - the lowest percentage in at least 20 years.

“IBM has had a tough year, largely because of its international business,” says Hugh Johnson, chairman of Hugh Johnson Advisors in the attached clip. Johnson boldly chooses Big Blue as his comeback stock of the year for 2014.

At the core of his bullishness is a belief that a rebound in the global economy, particularly in China and emerging markets, will restore the Armonk, New York-based company’s sales and profit growth.  

“If you get some turn in either China or the emerging markets in 2014, you’re going to get better results,” Johnson predicts, “and we’ll be headed to the $20 per share (earnings) number for 2015.”

If he’s right, and IBM hits the profit target it set nearly a decade ago, that would leave that stock trading at about a 50% discount to its average P/E ratio of 12.5X earnings for the past five years.

Some have argued that the I-T service provider that once sold everything from electric typewriters to main frame computers needs to reinvent itself again. It’s a claim Johnson feels is ‘’overstated” and simply not true.

“I think they’re doing just fine. I think their game plan is just fine,” he says, comparing IBM’s outlook to another tech comeback play, Hewlett Packard (HPQ), which is up 86% this year after falling almost 90% over the past 3 years.

It’s a well known fact that bad years are often followed by really good years, Johnson points out, adding that he thinks IBM’s business model is much better than Hewlett’s.

In short, Johnson’s advice is simple. “Stay put. Hold on. IBM is doing just fine, it just takes time and patience,” he says.

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