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• IBM 78% Rate It

After breaking out Monday,IBM ( IBM ) remains in a buy zone.

The stock cleared a 208.09 buy point in volume 61% above average. The ceiling of the 5% buy zone is 218.49.

By simple logic, this shouldn't be happening. Revenue growth was flat in Q1 and dropped 3% in Q2. Europe is the problem. IBM's revenue fell about 15% in France, 12% in Italy, 8.5% in Spain and 11% in Germany in the second quarter.

Currency translation was responsible for big chunks of the revenue declines, and Europe's problems don't appear to be fading.

So, why does the market like IBM?

On Monday, Deutsche Bank affirmed its buy rating on IBM and raised its price target from 225 to 240. The bank sees accelerating hardware growth short term. And favorable product cycles in services and software are expected to drive growth over many quarters.

The opinions of analysts, however, aren't nearly as important as the buying and selling by funds. While funds lightened their IBM holdings in Q2 by about 1%, some highly respected funds were aggressively adding to their positions.

Fidelity Contrafund increased its IBM stake 11% in Q2 after a 22% boost in Q1. Magellan Fund opened a new position in Q1 and upped its holdings 63% in Q2.

While IBM's revenue has taken a hit because of currency, earnings are holding up well. Annual EPS grew 13% in 2009, then 17% and 15%. The Street expects 13% growth this year.

IBM has a history of beating EPS estimates. Big Blue has topped the Street's consensus estimate every quarter for the past seven years.

The company will report after the close Oct. 16. Analysts expect earnings to grow 10% on another 3% drop in revenue.

Margin expansion has helped IBM deliver earnings gains. Pretax margin has almost doubled since 2003 -- rising from 10.6% in 2003 to 20.2% last year.

Also, revenue growth is strong in certain areas of the world. The BRIC countries -- Brazil, Russia, India and China -- combined for 12% growth in Q2.

IBM's dividend yield is 1.6%. The quarterly payout has more than doubled since early 2008.

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