When a blue-chip "household name" such as International Business Machines (NYSE:IBM) drops substantially, as it has in recent months, investors looking for fire-sale/value opportunities may be all too eager to pile into such a company, considering the incredible strength equities have shown over the past decade or so as investors have flocked toward yield as cheap money has flooded global markets.
That being said, many investors have been made martyrs by investing in "value" opportunities which turned out to approximate an exercise in catching a falling knife - not pretty.
Assessing IBM, therefore, should be done through the lens of an investor who intends to be committed for the long haul (I would define long-term as more than five years), and who may add to such a position on weakness, something I would consider to be a very difficult proposition for a company like IBM which has failed to gain traction in recent years as its business mix continues to change and the industry continues to evolve, favoring those firms which are better positioned to out-innovate firms such as IBM (or at least have the perception of having the ability to do so).
IBM has performed decently of late, and while the company's stock price has taken hits after IBM's management team announced projected earnings per share which came (very slightly) below analyst expectations, where analysts have really been focused with IBM is on earnings quality - not only the bottom line earnings number.
Concerns around how the company's legacy hardware business will continue to negatively impact earnings has many on the sidelines, with some high-profile investors such as Warren Buffett taking a "pass" in recent years, for similar reasons.
That being said, at some microscopic valuation multiple any company would be considered a buy, and conversely at some sort of elevated valuation multiple every company is a sell - it's all relative. I'm keeping my eye on IBM, and will continue to comment on this firm moving forward, depending on the direction the market takes.
Invest wisely, my friends.
