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International Business Machines Corp. (IBM), And Three Stocks “Not-to-Buy” After Friday’s Earnings

Earnings are a great time to capitalize on value, but it is also a time when value investors fall into traps. The key to successfully purchasing a stock after earnings is to assess the company’s value, and in this piece I am looking at three stocks that I believe are not worth the buy after reporting earnings.

Too Many Questions to Buy this Stock

International Business Machines Corp. (NYSE:IBM) posted a loss of 8.28% on Friday after reporting earnings that failed to meet analyst expectations. The company missed on both the top and bottom line as revenue fell 5.1% due to weakness in hardware sales. According to the company, much of this problem was related to timing, as the company did not “close deals,” insinuating a better Q2. However, the company’s backlog grew just 1% and with the company’s peers performing badly, not everyone is buying the story that weakness is due to execution.

In the past, International Business Machines Corp. (NYSE:IBM) was a zero-growth company that simply kept trading higher, but now the company is seeing slowed growth and is doing its best to convince Wall Street that it is not macro related. Personally, I think there is a demand issue on hand, yet regardless, I am more concerned with the company’s poor bottom-line performance. This is a company that had a much lower tax rate in Q1, as BMO suggests EPS could’ve missed by $0.34 (instead of $0.05) if not for the lower tax rate. In my opinion, this suggests more trouble on hand, and at the very least, too many questions for an investment.

Not a Bad Quarter, but there is Better Value Elsewhere

Shares of McDonald’s Corporation (NYSE:MCD) Corporation traded lower by 1.95% on Friday after the company announced earnings that met expectations. Therefore, considering the decent quarter, some might say to buy on the weakness. However, there are several parts to this story that I don’t like.

First off, this is a near zero-growth company, as revenues rose 1% total over the previous year. However, this growth was due to some emerging market growth and new stores, as margins actually declined and comparable store sales fell more than 1% in both Europe and the U.S. This fact combined with the stock trading near 52-week highs and with a P/E ratio of 18.65 (higher than the market), I think McDonald’s Corporation (NYSE:MCD) could be a trap and that there is better value elsewhere in the market.

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