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International Business Machines Corp. (IBM) in Predictable Buy Pattern

I’m not usually one for technical analysis, but some companies are so large that they require it if you’re to make good money on them. Take International Business Machines Corp. (NYSE:IBM) for example.

A fundamental analysis may make you question the stock at its current price of about $192 per share. Amazon.Com seems to be dominant in the public cloud, having recently secured a big contract from the CIA despite IBM offering a lower bid. This has sent IBM stock spiraling, anticipating a bad quarter, down 10% from its recent highs near $210.

International Business Machines Corp. (NYSE:IBM)

IBM’s Cloud Strategy

But International Business Machines Corp. (NYSE:IBM) is not out of the cloud market. Far from it. It’s putting recently-acquired Softlayer at the heart of a new cloud strategy, with 13 data centers and the flexibility to handle incoming links from private lines as well as the Internet. While the company supports open source Open Stack as its base infrastructure, the SoftLayer deal means it can also handle inputs from other infrastructure systems as well, including Amazon.

What the CIA was buying from Amazon was a private cloud based on Amazon technology, essentially a huge box into which it can pour web data for analysis of patterns and areas for further investigation. It doesn’t need multiple standards, it doesn’t need flexibility. It wants brute force.

But most clients are not the CIA. Private companies, and foreign governments, want flexibility in their cloud environments. They want to build hybrid clouds, moving data back-and-forth between their own systems and the public cloud in order to secure the best pricing when their own systems prove inadequte. International Business Machines Corp. (NYSE:IBM) can now do this with full security. Amazon can’t.

International Business Machines Corp. (NYSE:IBM) can build you a custom cloud, handle hybrid cloud computing, and give customers full security in the public cloud. It has the people necessary to monitor security of an entire corporate network, pro-actively warning of threats through its ISS unit.

That’s going to result in business.

Look at the numbers from some distance and you see a stock trading at a slightly below-market multiple of 13.77, with steadily rising margins on stable revenue. Analysts are expecting revenue to come in at $25.36 billion, with the lowest estimate of earnings 10 cents a share higher than last year, when earnings are announced next week.

It’s not sexy work, but it’s steady. Compare it to some more speculative possibilities in the tech space.

Speculating on Microsoft Corporation (NASDAQ:MSFT)

Compare these figures with what you’d get from Microsoft Corporation (NASDAQ:MSFT). That stock has been on a steadier rise through the last year, but its Price/Earnings (P/E) multiple now stands at nearly 18, meaning investors are expecting big things.

But are big things coming? The company’s revenues last year were only 3% better than the year before, and margins were down. So far this year margins are steady. For every business it has that’s improving, like operating systems, there’s a “Perils of Pauline” aspect to the company’s headlines that should be troubling. The Xbox gaming system was considered a standout – but many are calling the launch of Xbox One, followed by the departure of entertainment head Don Mattick, a disaster. Its Azure cloud was considered a disaster a few months ago, but now it’s expected to be a star because of a deal with Oracle.

Speculating on Apple Inc. (NASDAQ:AAPL)

Apple Inc. (NASDAQ:AAPL) is another alternative investment, but it’s also unpredictable.

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