Big Blue has seen better days.
Shares are barely higher than they were 20 years ago.
Yet, the options market is pricing in a big move for earnings today…nearly 4.6%.
So, why aren’t people searching for this stock?
The last spike in interest came back in early July when IBM announced its president Jim Whitehurst was stepping down.
There seems to be a disconnect.
And that could mean some serious upside potential.
We took a look into financials and business outlook to find out what you can expect after the close.
IBM struggles for direction
Shares today sit just below $140.
That was their high back in 1999.
The company, once dominant in the PC market, transformed into a consulting company.
Yet, they’ve seen revenues decline every year for the last decade.
Recently, IBM positioned itself as a Cloud and Cognitive Software provider.
This included the acquisition of Red Hat for $34 billion.
Ironically, it was one of the only segments to grow in 2020 and saw 18% growth in Q1.
That’s not to say there isn’t value here.
IBM throws off a nearly 5% dividend yield.
The problem is every other category continues to falter over time.
How the company could transform
IBM has a mammoth balance sheet.
Despite declining revenues, their core business generates enormous amounts of cash.
That gives them a war chest capable of buying their way into the future.
And that’s the hope of many investors.
Arvind Krishna, former head of IBM’s cloud and cognitive software division, stepped into the CEO spot last year.
Additionally, artificial intelligence development holds a lot of promise.
In January, Palantir and IBM agreed to a joint partnership. The IBM sales team will offer a package of IBM Cloud Pak and Palantir’s Foundry.
Our hot take
Growth isn’t here yet.
Chances are the options market is being overly optimistic.
In fact, it will take several acquisitions and years to realize any current prospects.
During that time, investors get paid a healthy dividend well above the market.
One interesting way to play the no-movement stock is with a covered call.
This is an options strategy whereby an investor owns 100 shares of stock and then sells a call option against that stock.
Doing this pays a credit to the owner.
For example, you could sell the September 17th $150 call option for $1.15 per share or $115 per contract.
As long as the stock remains below that price, in this case, $150 by expiration, you keep that credit.
Plus, you also get paid any dividends along the way.
It’s a solid strategy to milk some more out of a value stock while you wait.
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