NEW LOW OBSERVER

On April 18, 2012, we said of IBM:

“In this case, the dividend has been rising much faster than the stock price, among the many reasons that Buffett might be interested in a technology stock near an all-time high.  Now, just imagine what the stock will look like after falling to a 52-week low.”

On July 23, 2015, we said:

“We think that a value investor would have fun pouring over the data to determine the actual value of IBM.   Gould’s Speed Resistance Lines [SRL] indicate that the conservative downside target for IBM is $130.  However, we think a process of accumulation at the current price, and below, is a prudent long-term strategy.”

On May 4, 2018, we said:

“For the time being, IBM is reasonably priced for a retest of the 2012 peak in the Altimeter.  The stock price would be approximately $362.  Keep in mind that the stock still has the prospect of retesting the prior low at $120.  The 2008 low of $80 is a consideration but not expected at this time.”

Below we have outlined the commentary dates and the relative price of IBM.

Our interpretation of the data is that IBM is at a critical stage given their recent investment in Red Hat (RHT).  There are some who are asking whether or not IBM has overpaid for RHT.  To put an end to the discussion, we show a comparison between RHT and IBM since the March 2009 low.

The concept of cloud computing and its role wasn’t new to IBM in 2015.  Yet, at a comparable share price, in early 2016 (red arrows), IBM could have bought RHT at $70 instead of the current bid at $190.

The $190 takeout offer exceeds the early 2016 price by +171% and was +62% above the closing price of RHT on October 26, 2018. This deal doesn’t pass the smell test.

We will close with the following observations and price targets: Continue reading →