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Can IBM Shares Continue Their Roll?

Stock MarketsFeb 19, 2019 03:10PM ET
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Investing.com - It may shock, but IBM (NYSE:IBM) shares are on something of a roll. The question is how long the roll will last.

The stock is up 21% this year, second among the 30 stocks in the Dow. Boeing (NYSE:BA) is tops, in part because Airbus Group (PA:AIR) is struggling and because traders are betting a U.S.-China trade deal will get done.

But IBM? This is a stock that fell 25% in 2018 and 7.6% in 2017 and has struggled to show revenue growth for years.

Maybe IBM has a few things going for it.

Most important is that, for now, investors seem willing to wait to see if CEO Ginni Rometty's bet on building a real cloud business comes to fruition. The business has been growing, but maybe not as quickly as some investors want. Revenue for the business grew 12% in the fourth quarter to $19.2 billion.

But IBM faces intense competition from players like Amazon.com's (NASDAQ:AMZN) Amazon Web Services, Microsoft's (NASDAQ:MSFT) Azure business and Alphabet's (NASDAQ:GOOGL) Google Cloud Platform.

The key is IBM's pending $34 billion acquisition of open-source cloud developer Red Hat (NYSE:RHT), expected in the latter half of the year. It's seen as the big fuel for the cloud business.

Add to that continued investments in analytics and artificial intelligence.

And IBM has real and long-standing relationships with the biggest players in the financial services industry that at least provides stable service revenue.

The stock began the year on the cheap side after hitting a 52-week low of $105.84 during the December market meltdown. Even now, its $1.57-a-share quarterly dividend represents a 4.6% yield, compared with the S&P 500's yield of about 2%. And the dividend doesn't seem to be at risk.

Technical indicators mostly rate the stock a buy. Its relative strength index, a measure of a stock's momentum, is about 60. A reading above 75 suggests it's overbought and vulnerable to a selloff.

But the proof ultimately will be real results, which may explain why the stock's up 2.7% in February, about even with the S&P 500 but trailing the Dow's 3.7% gain.

Can IBM Shares Continue Their Roll?
 

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