Is IBM Poised to Head Higher?

With shares of International Business Machines (NYSE:IBM) trading around $187, is IBM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

IBM is an information technology company. The company operates in five segments: Global Technology Services, Global Business Services, Software, Systems and Technology, and Global Financing. Technology products and services are in high demand worldwide, as consumers want to be up to speed and companies always need the latest and greatest to stay ahead of the competition. Cloud computing has been hot in recent times, which has not been good news for IBM. Should the company want to hold on to its market share, it needs to make moves quickly and provide the technology products and services that worldwide consumers and companies demand.

Hundreds of workers at a plant run by IBM have gone on strike, as the company prepares to transfer the southern China factory to Lenovo Group Ltd. under a $2.3 billion deal for IBM’s low-end server business. Images and video recordings of the strike have spread over social media since Monday and show large numbers of workers in blue coats holding signs and shouting from outside the gates of the IBM Systems Technology Co. Ltd. plant in the city of Shenzhen. The strike entered its fourth day on Thursday.

A spokesperson for IBM confirmed the strike, but declined to offer an explanation of why workers walked out. In a statement, IBM spokesperson Harriet Ip said employees have a choice of remaining at the plant after Lenovo takes over under wages comparable to what they have been receiving or they can leave and receive an “equitable severance package … While it is entirely an individual’s choice, we are hoping employees will decide to remain with ISTC,” Ms. Ip said. According to posts on Sina Corp.’s Weibo social media service, which couldn’t be independently confirmed, people who identified themselves as plant workers said IBM wasn’t offering sufficient severance for those who opt to leave, while those who want to stay worry wages will fall. ”We are protecting our rights,” one Weibo user, who declined to be identified but said he was a worker at the plant, said via online chat.

T = Technicals on the Stock Chart Are Strong

IBM stock has struggled to make significant progress in the last several years. However, the stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, IBM is trading above its rising key averages which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of IBM options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
IBM options	18.37%	70%	68%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
April Options	Flat	Average
May Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on IBM’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for IBM look like and more importantly, how did the markets like these numbers?

	Top Insurance Stocks For 2015 2013 Q4	2013 Q3	2013 Q2	2013 Q1
Earnings Growth (Y-O-Y)	11.63%	10.51%	11.4%	3.45%
Revenue Growth (Y-O-Y)	-5.46%	-4.15%	-3.33%	-5.11%
Earnings Reaction	-3.27%	-6.37%	1.76%	-8.27%

IBM has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about IBM’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has IBM stock done relative to its peers, HP (NYSE:HPQ), Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), and sector?

	IBM	HP	Oracle	Microsoft	Sector
Year-to-Date Return	0.22%	6.95%	3.49%	1.66%	4.08%

IBM has been a poor relative performer, year-to-date.

Conclusion

IBM is a global technology company that provides essential products and services to companies and consumers worldwide. Hundreds of workers at a plant run by IBM have gone on strike. The stock has been struggling over the past couple of years, but is currently surging higher. Over the last four quarters, earnings have been rising while revenues have been declining, which has produced conflicting feelings among investors. Relative to its peers and sector, IBM has been a poor year-to-date performer. WAIT AND SEE what IBM does next.