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International Business Machines Corp. (IBM): Are Hedge Funds Too Pessimistic?

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Is International Business Machines Corp. (NYSE:IBM) ready to rally soon? The smart money is taking a pessimistic view. The number of bullish hedge fund bets went down by 1 recently, but it’s worth noting that UBS upgraded IBM this morning, so it’s crucial to take a look at hedge funds and insiders’ sentiment in more detail.

The Top 4 Tech Stocks to Own in 2013In the 21st century investor’s toolkit, there are tons of gauges market participants can use to monitor their holdings. Some of the most useful are hedge fund and insider trading activity. At Insider Monkey, our studies have shown that, historically, those who follow the best picks of the top fund managers can beat their index-focused peers by a solid margin (see just how much).

Equally as important, positive insider trading activity is a second way to break down the world of equities. Just as you’d expect, there are a variety of incentives for an executive to get rid of shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several academic studies have demonstrated the useful potential of this strategy if shareholders know where to look (learn more here).

Now, let’s take a peek at the recent action surrounding International Business Machines Corp. (NYSE:IBM).

How have hedgies been trading International Business Machines Corp. (NYSE:IBM)?

In preparation for this year, a total of 47 of the hedge funds we track were bullish in this stock, a change of -2% from the third quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably.

According to our comprehensive database, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in International Business Machines Corp. (NYSE:IBM). Berkshire Hathaway has a $13.0475 billion position in the stock, comprising 17.3% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $624.9 million position; 1.7% of its 13F portfolio is allocated to the stock. Other hedgies with similar optimism include D. E. Shaw’s D E Shaw, Phill Gross and Robert Atchinson’s Adage Capital Management and Ric Dillon’s Diamond Hill Capital.

Due to the fact that International Business Machines Corp. (NYSE:IBM) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes last quarter. Intriguingly, Louis Navellier’s Navellier & Associates said goodbye to the biggest stake of all the hedgies we watch, worth about $76.4 million in stock., and Joe DiMenna of ZWEIG DIMENNA PARTNERS was right behind this move, as the fund cut about $39.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

What have insiders been doing with International Business Machines Corp. (NYSE:IBM)?

Insider trading activity, especially when it’s bullish, is best served when the primary stock in question has experienced transactions within the past six months. Over the last 180-day time period, International Business Machines Corp. (NYSE:IBM) has seen zero unique insiders purchasing, and 17 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to International Business Machines Corp. (NYSE:IBM). These stocks are Silicon Graphics International Corp (NASDAQ:SGI), Cray Inc. (NASDAQ:CRAY), Teradata Corporation (NYSE:TDC), , and Hewlett-Packard Company (NYSE:HPQ). This group of stocks belong to the diversified computer systems industry and their market caps match IBM’s market cap.

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