Until recently, shares of International Business Machines ($IBM) were engaged in a seemingly never-ending downward spiral. In fact, ‘Big Blue’, as the company came to be known in the 1960s, shed 46% of its equity market cap from its March 2013 peak to the February 2016 low. As horrible as that sounds, $IBM’s relative performance was even worse, as the company lagged the global equities market (as proxied by the iShares MSCI ACWI ETF) by greater than 5,300 basis points between March 2012 and January 2016.
In the wake of $IBM’s protracted skid, our work suggests shares are now due for price gains and a run at equity market leadership over at least the next year or so. The primary support for our bullish perspective owes to our main timing models, based on the work of acclaimed economist, E.S.C. Coppock.
Notice above that our preferred measure of long-term (i.e. monthly) momentum appears to have bottomed in February, coincident with the price low. Our gauge forecasts the monthly Coppock Guide for $IBM will improve into 2017, and, importantly, will advance through the zero bound (we have observed that the this threshhold commonly separates whipsaws from more enduring turns; as such, our expectation for this level to be taken out adds conviction to our outlook).
Similarly, our quarterly momentum curve appears to be a few periods from troughing. This observation forces the consideration that International Business Machines might be in the early stages of a multi-year advance (though we admit that the case for enthusiasm over the very long term is more difficult to construct at present).
In addition to constructive price-based momentum conditions, we point to increased operational traction as another buttress for share price. Notice below that, per Zacks.com, consensus anticipates rising earnings per share for $IBM going forward. If history offers any guidance, the recent low will, in fact, mark a bottom of significance, and rising stock prices should be expected in quarters to come, provided the company continues to execute (just as price led the 2014-2016 downdraft in earnings).
Our medium-term indicator (not shown here) suggests $IBM will push higher without more than short-term interruption into late-May. As such, we would not be surprised to see the rally off recent weeks tested this summer. If our thesis is correct though, the February low will hold and higher highs will ultimately follow.
We took shot at a long $IBM position in the summer of 2014. Unfortunately, any gains that accrued after our call were short-lived. We observe stronger support for our current optimistic stance though, and, as such, are confident that shares of $IBM will rally in months to come.