International Business Machines ( IBM ) will report fourth-quarter earnings after the market close January 22. The company is expected to pos t earnings of $4.84 per share, down from $5.18 during the same period last year. IBM stock has fallen 11.0% since the end of June.
IBM was recently trading at $124.50 down $46.63 from its 12-month high and $18.56 above its 12-month low. InvestorsObserver's Stock Score Report gives IBM a 19 long-term technical score and a 49 short-term technical score. The stock has recent support above $120 and recent resistance below $130. Of the 13 analysts who cover the stock 4 rate it Strong Buy, 1 rate it Buy, 7 rate it Hold, 0 rate it Sell, and 1 rate it Strong Sell, IBM gets a score of 41 from InvestorsObserver's Stock Score Report.
Wall Street remains skeptical of IBM's turnaround program. The company failed to make the gains in cloud computing and artificial intelligence that it has been working to for years, which led to the massive $34 billion acquisition of RedHat announced last year. A lot of analysts believe IBM overpaid for RedHat and it will take many years to recoup the cost. RedHat is a leader in cloud computing, so the purchase does put IBM now that in that position, but it came at a big price. The stock was already showing weakness before the announcement and fell sharply on the news. The stock drop was compounded by a correction in the overall market, and IBM has started to recover but Wll Street will be quick to punish the stock on any signs of weakness in the upcoming report. The street is looking for a small beat for the quarter with a whisper number of $4.84. There is a lot of negativity priced into the stock at this time, so shareholders could see a nice rally following a better than expected set of numbers. Analysts do see some upside in the stock, with an average price target of $159.60.
Stock Only Trade
If you're looking to establish a long stock position in IBM consider buying the stock under $125. Sell if it falls below $116 or take profits if it gets to $144.
If you want a bullish hedged trade on the stock, consider a 3/15/19 105/110 bull-put credit spread for a $0.40 credit. That's a potential 8.7% return (57% annualized*) and the stock would have to fall 12% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider an 3/15/19 135/140 bear-call credit spread for a $0.50 credit. That's a potential 11.1% return (72% annualized*) and the stock would have to rise 9% to cause a problem.
Covered Call Trade
If you like the stock but wish to lower your cost basis on a new position, you may want to consider a 3/15/19 $125 covered call. Buy IBM shares (typically 100 shares, scale as appropriate), while selling the 3/15/19 $125 call for a debit of $120.50, per share. The trade has a target assigned return of 3.8%, and a target annualized return of 24% (for comparison purposes only).