The Good, the Bad and the Ugly: A look at IBM

There is no doubt IBM is the ultimate bellwether, the tried and true, the bluest of the blue chips. Quarter after quarter "Big Blue" hits the numbers, what is there not to like?  Even Warren Buffett has jumped on the bandwagon, scooping up north of $10 billion worth of stock.  According to Ryan Guina's article in US News dated Oct. 26, 2010, "Buffett and his partners famously sat out of the Dot-com Bubble in the late nineties because technology wasn't a field he was comfortable with.  While others speculated on technology start-ups, Buffett was scooping up value stocks which had fallen out of favor.  A few short years later the bubble crashed and investors went back to the value stocks Buffett had been buying all along.  Buffett not only avoided substantial losses, but he made money because he stayed true to investing in what he knows".  Does Warren know IBM?  Is he now comfortable with technology...or is he so enamored with IBM's financials that he has forgotten his own rule?  Profit margins of 15%, ROE in excess of 70%, and a P/E of 14, IBM does appear to have all the makings of a gorgeous technology play.  However, one should not make the mistake of attributing IBM's success with its own greatness as much as to HP's Neolithic incompetence.  Forecast cloudy.  IBM's new competition is coming from all fronts, including Apple and its Cloud centered devices.  There is little doubt given a long enough time horizon IBM will perform, but someone wanting to buy IBM today while it is trading at $190 with a paltry dividend of 1.5%?  I question the sanity.  IBM generated a weekly sell signal early in December.  A failure of IBM to break out above 195 will confirm the signal and could generate significant downside risk.  Near  term downside potential of 163 is possible, with an intermediate target of 132 should IBM's new CEO, Rometty, prove the Soothsayer of Omaha's crystal ball cracked. -To thine own self be true.