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No. of Recommendations: 1
Someone please talk me down from buying IBM.
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No. of Recommendations: 1
give me a reason why you want to buy... I can talk you out of it.. :)
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No. of Recommendations: 1
Someone please talk me down from buying IBM.

Still trading at twice 1998's share price despite having less revenue and net income now (albeit with half the share count outstanding now vs. then, so roughly the same market cap as 20 years ago).

good luck,
dan
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No. of Recommendations: 5
see kingran's note

a few thoughts while we wait:

*you thought the red hat purchase made sense when it made sense? this is the critical issue perhaps, given it is the most recent example of their capital allocation model
*in a falling market, strong companies are getting cheaper, so why chase a dog unless you've got some sort of exciting catalyst
*strategic impairments not enough to offset slower growth parts of biz
*how well can you evaluate the different facets of IBM's business?
*buying things that look cheap is a hard way to make money - they have to be cheap for an identifiable reason you think will change; is this what you think?

---

you could do those 4 questions ET asked

) You're betting on P/E expansion (why?), or
2) You're betting on faster revenue growth (why?), or
3) You're betting on operating margin expansion (why?), or
4) You're betting on more efficient capital utilization (why)?

going thru this exercise is very helpful

--

IBM announced that it had reached a definitive agreement
to acquire Red Hat for $190 per share, or $34 billion in
enterprise value. We see some strategic rationale in favor of IBM's planned
acquisition and believe there can be scale-related revenue
synergies based on cross-selling opportunities. However,
we think IBM has been backed into this position and
needed an acquisition of this magnitude and nature to
reinvigorate its growth profile and competitive positioning
after years of lagging performance versus peers. As the
world becomes increasingly cloud-focused, the hybrid
cloud boost IBM will receive from the Red Hat acquisition
will be supportive and at least give IBM a fighting chance
against other cloud providers. We see Red Hat as an
open-source sales catalyst for IBM across its own (and
competitors) infrastructure-as-a-service, platform-as-a-service,
and hosted private cloud environments, but still see IBM
as an also-ran versus peers in the infrastructure and
platform markets.

---

I'm buying companies I own cause they are getting cheaper
I'm not looking to add anything that gives me a headache
but in this and all things....just make money
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No. of Recommendations: 0
p.s.

I owned and followed IBM for a little while in 2018
which makes me a reader of their calls and some research
but little else

but my sense, worth 2c
is that the company would have been worth more
broken up
however they could have done it, but ala what the old HP did
IBM decided to buy a very expensive software company instead
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No. of Recommendations: 1
Everyone hates IBM, and deservedly so. But the opportunities to capitalize upon its embedded base and relationships are enormous, if/when it finally gets it act together. IBM plods along the correct strategic path, eliminating “junk calories” in revenue and focusing on higher-margin services and software. 2018 comps will be favorable for the coming year. The company still throws off enormous FCF and directs a lot of it to shareholders: a good defensive play in a softening economy and stock market. Trading at ~8x EPS, an enticing margin of safety.
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No. of Recommendations: 1
Agreed: the Redhat acquisition had a definite odor of desperation about it, and that's significant.

So I haven't bought (yet). But there is a price at which even IBM is worth buying. The question, of course, is what that price is.
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No. of Recommendations: 2
Everyone hates IBM, and deservedly so. But the opportunities to capitalize upon its embedded base and relationships are enormous, if/when it finally gets it act together.

you are a big boy, so I don't worry about over-influencing you in not buying what could always go up 50% next year, but...

I don't understand the above. The market is not foolish - it assigns valuations not in the cloud so to speak, and what makes you believe that management - who is the management already in place - will capitalize on 'enormous' opportunities? If a new management said this and laid out a plan (ala what LOW has done), then you've got something to measure, but aren't the above just words? Do you actually know any of this is true? I've always assumed management teams pretty much try their best, so maybe they already have their act together. How would you know differently in a company this size?

2018 comps will be favorable for the coming year.

honestly, how do you really know that? there's no apparently momentum in the business, and 2019 - who knows - could be a more difficult year for everybody. If people ate your lunch in good times, what happens in bad?

The company still throws off enormous FCF and directs a lot of it to shareholders: a good defensive play in a softening economy and stock market. Trading at ~8x EPS, an enticing margin of safety.

have you made the adjustments for the acquisition? Will change things a bit.

I would never buy IBM without assuming myself they did a good job in buying Red Hat. That's a huge allocation decision, a decision tree moment for them, and they could always do things just like that. If Red Hat is not so good, then why would you trust them?

I know zip about Red Hat...other than what VL tells me

what's the two minute drill?
what do you as the things that go wrong?
what has to happen for it to succeed?
when does the red hat thing close
won't that 'cloud' the evaluation until it closes?

I'm sure IBM did a presentation on why Red Hat is such a great deal
did you read that?

Helpful suggestions to completely ignore here....

:-)
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No. of Recommendations: 0
re: red hat buy
fwiw, that was a morn opinion
not mine
I don't know zip about it
but wanted to post something on it
cause it seems very relevant to me

But there is a price at which even IBM is worth buying.

really? buy only if it goes up
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No. of Recommendations: 4
But the opportunities to capitalize upon its embedded base and relationships are enormous, if/when it finally gets it act together

The IT buyers market has dramatically changed in the last decade or so. There used to be a center of gravity or data center presence which allowed companies to sell new products. For example, you could be an Oracle shop, primarily run their Oracle ERP products, database, etc and it allowed Oracle to sell additional products like (security or middleware, etc) to the customer. This even allowed Oracle to not to have a niche or differentiated product, and when they get it right they could force the switch. Those days are gone. To address this companies used to buy niche players and keep their share of customers IT spend. Examples of this are like IBM's purchase of Tivoli, etc. Those days are also gone.

Now, this model is completely broken by the cloud, open source and relatively less expensive integration. Companies routinely have Oracle or SAP ERP, workday for HR and Sales Force for CRM, and they could run this on AWS or Azure.

So don't assume the customers will wait for IBM to get it correct and then return back to IBM's fold. If you lose a market share or a portion of customers valet, it is lost permanently.

Another change is, in many of the growing areas, IBM is not competing with small niche players, rather much powerful, bigger competitors. IBM has no edge in terms of size, innovation, existing install base, or influence with AWS, Google or Azure, just to name few.

a good defensive play in a softening economy

I am addressing this slightly from different perspective. The last 8 years are the best IT spending environment and in that period, IBM had a revenue decline. If the economy softens and IT spending moderates, do you think they are going to be doing any better?

Trading at ~8x EPS, an enticing margin of safety

Given their low tax rate and revenue decline and margin erosion, the sustainable profits should be closer to $8B and below. Now RedHat purchase doesn't address their revenue decline in GTS segment and at the best they will have flat revenue growth, declining margins and trying to integrate a company with a very different culture (Open source, innovation driven, highly compensated via stock options) with IBM's culture is a significant risk.

RedHat purchase means the buybacks have to suspended, which primarily helped to hold the EPS number, is gone. The 5.5% dividend sounds interesting but that could vaporize in a minute.

Personally, I would rather invest in 3% CD (which my credit union offers) than buy IBM for 5.5% dividend.
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No. of Recommendations: 1
All important points, exactly what I was hoping to get. Thank you, sir.

Yup, I've gone over IBM's take on the Redhat acquisition. If (and that's the operative word) things go as planned, this will be an "inflection point" for IBM. (How many times have we heard that?)

Stuff is here: https://www.ibm.com/investor/events/ibm-acquires-redhat10201...

I've also read many analysts' takes on it, including skeptical ones.

So, to me, it comes down to margin of safety on a venture that could have a very good payoff. Or continue to decline in value.
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No. of Recommendations: 0
Given their low tax rate and revenue decline and margin erosion, the sustainable profits should be closer to $8B and below. Now RedHat purchase doesn't address their revenue decline in GTS segment and at the best they will have flat revenue growth, declining margins and trying to integrate a company with a very different culture (Open source, innovation driven, highly compensated via stock options) with IBM's culture is a significant risk.

I think "$8B and below" is extreme. But your points are well taken.

Looks like no IBM for me today.
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No. of Recommendations: 0
I think "$8B and below" is extreme

Red hat acquisition costs (like interest and integration costs) will easily be $500M this includes taking into account RHT net income. When you factor that you could easily get below $8B. I am sure IBM will pull some tricks to keep the reported numbers high.
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No. of Recommendations: 0
really? buy only if it goes up

e.g., like now? :-)
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No. of Recommendations: 1
if earnings will be materially higher and all that accumulated wisdom

--

apologies to those 'English and Comparative Literary Studies' majors i might have offended; my distrust of printed word publication of any type took root a long, long, long time ago when I read in a Money Magazine: "Based on the research they did for this issue, many staffers purchased their first mutual fund".

Think about that.

I think it was Morningstar who said they hired people who could write (I'd fail!) and then they taught them how to do the analysis.

--

sorry, my entire everything is build on practitioners
i have a LOT of investment books on my shelves
only the practitioners matter
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No. of Recommendations: 1
apologies to those 'English and Comparative Literary Studies' majors i might have offended; my distrust of printed word publication of any type took root a long, long, long time ago when I read in a Money Magazine: "Based on the research they did for this issue, many staffers purchased their first mutual fund".

Think about that.

I think it was Morningstar who said they hired people who could write (I'd fail!) and then they taught them how to do the analysis.

--

sorry, my entire everything is build on practitioners
i have a LOT of investment books on my shelves
only the practitioners matter


People learn.
Especially if they are intelligent, inquisitive and hardworking (IIH) (required qualifications for a journalist.)
Tech writers can morph into coders.
Or - Jason Zweig probably invests wisely.
Or - if an IIH person studied the books on your shelf, would they not be better investors than they were before? Not compared to you but compared to their old selves and most retail investors?
Or - there is a reason hedge funds hire math and physics majors and it's not because they care about the superstring theory.
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No. of Recommendations: 0
if an IIH person studied the books on your shelf, would they not be better investors than they were before?

yes, they would be 'better investors' but that wouldn't make them good investors; I wasn't disparaging his investment knowledge or expertise by the way, but I can't really tell that he has any expertise at all from what you referenced

Not compared to you but compared to their old selves and most retail investors?

i'm sure you agree that the power of a journalist, relatively speaking, is disproportional to the expertise they actually have; it has always been so, and there is no harm in saying this and nothing is meant about this or that person

Jason Zweig probably invests wisely.

there is no way to know but he is a very good writer that writes very good generic articles and I would trust him far more - because I've read a number of things he has done - in a way I would never trust good old Max, but that's just my view of things. Zweig did recommend "The Warren Buffett Shareholder" which was beyond abysmal but one of his articles was included so perhaps that impugned his objectivity.

You are free to believe everything you read...and I'll admit the article is catchy. I'm glad he has found content to help him eat cause he is in a tough job, if that is his job.

Be sure to check out the wonderful 'More to Explore' content
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No. of Recommendations: 0
minor, and I'll let it drop

a while ago - long while ago - I had a conversation with the editor of Kiplinger - he told me that they didn't write the articles, they merely spoke for people they talked with

with articles like the one referenced, the author is the one doing the speaking and the presumption is that the person writing the article knows something about what he speaks. Surely you've seen lots and lots and lots and lots of folks who talk about things they know next to nothing about.

Just read my notes to get a taste for example, cause I know 0.24% of most things I post about

At least with investing, I think looking at every side is a good thing, right?

:-)
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No. of Recommendations: 0
Or - Jason Zweig probably invests wisely.

For what it's worth, Jason Zweig probably isn't allowed to invest particularly wisely. Most major financial publications put strict limits on trading in order to avoid the appearance of impropriety. Last thing WSJ needs is lawsuits over insider trading allegations.

best,
dan
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No. of Recommendations: 2
Don't buy melting ice cubes.
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No. of Recommendations: 0
FWIW, I was talking with an IBM employee and the positive side of RHT acquisition is IBM cannot do any M&A for next few years!
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No. of Recommendations: 1
Footnote: IBM beats on revs and EPS and ups guidance. Stock up 22% since start of this thread on Dec 27 and up ~9% this morning. Will I buy it now? Nope.
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No. of Recommendations: 1
I think you could have pretty much bought anything on Dec 27th and had 10% to 15% return at this time. I haven't yet looked into their results and guidance. This is not the first time IBM announces a positive guidance and the stock rallies and folks read the results and guidance closely and the air goes out of the stock. I am not saying that is the case, but...
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No. of Recommendations: 1
yeah...saw that

not sure there is a lesson there
I haven't look at report either
but was it predictable? If yes, then...

if no, then I still think red hat deal tells you more than 1 quarter of results, but in the end 22% is 22%

If I had held my position, I would still be down, but that doesn't mean anything to you...
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No. of Recommendations: 1
I was curious
not reading the PR
just printed the Q4 income statement

21760 vs. 22543
revenue down

4434 vs 4469
pretax income down

for the year,

79591 vs 79139, up a tad
11342 vs 11400, down a tad

makes no allowance for starting point of course

I ended up dropping the biz from my rotation
at first glance, no reason to think that was a mistake, but...
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No. of Recommendations: 1
Yeah, I think literally every financial I own thru yesterday is up 12% YTD.
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No. of Recommendations: 1
I think you could have pretty much bought anything on Dec 27th and had 10% to 15% return at this time.

Yes, IBM was indistinguishable from the S&P 500 and Nasdaq over the period, excluding today. But that's kinda the point: the stock had been totally wrung out.

What happens from here ... well, we'll see.
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