IBM Approaching Critical Support Level
Over the last five weeks, International Business Machines (NYSE: IBM) has dropped 23% thanks to a disappointing earnings report and the announcement that it is buying cloud-software firm Red Hat (NYSE: RHT).
The sharp drop has the stock within reach of a critical support level. IBM fell from early 2013 through the beginning of 2016. When that bearish phase ended, the stock seemed to find support in the $110 area as the stock bounced around the level for three weeks before reversing upward.
Prior to the lows in 2016, you would have to go back to 2010 in order to see IBM trading below the $110 level.
At this point, value investors and dividend investors alike have to be looking at IBM. The yield for IBM has jumped to over 5% thanks to the price decline and the recently announced dividend of $1.57 per quarter.
Earnings for the last four quarters have totaled $14.09 and given the current price, the P/E ratio is at approximately 8.25. It isn’t very often you see an established company like IBM trading at a P/E ratio under 10 and offering a 5% yield.
In addition to the news about IBM buying Red Hat earlier this week, the company announced on Tuesday that the board has approved an additional $4 billion in its stock buyback plan. This should also be a point of attraction to value investors as the float is being lowered.
The two biggest concerns I have about IBM right now are the stagnant sales and earnings, and the possibility that the company is overpaying for Red Hat. Over the last three years, IBM’s earnings have declined by an average of 2% per year and sales have declined at a rate of 1% per year.
Red Hat should be able to help with the earnings and sales growth as it has averaged earnings growth of 23% per year over the last three years, while sales have increased at a rate of 19%.
My concern is the fact that IBM is buying Red Hat for $34 billion and that amounts to $190 a share. The deal was announced on Sunday, October 28 and the Red Hat’s stock closed at $116.68 on Friday, October 26. That is a premium of almost 63%.
Like I stated before, value investors and dividend investors should potentially give consideration IBM if they don’t own the stock already. A P/E ratio below 10 and a 5% yield are hard to come by. For growth investors, having Red Hat in the mix has to be appealing for the possible growth it can add to IBM’s top and bottom lines.
For me, I would consider buying at the current level with a drop below $105 as a stop. The other possibility is to wait and see if the stock drops to the $110 level and then try to pick it up there. If I did that, I would use a move below $100 as a stop.
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Momentum Indicator for IBM turns positive, indicating new upward trend
IBM saw its Momentum Indicator move above the 0 level on September 08, 2026. This is an indication that the stock could be shifting in to a new upward move. Traders may want to consider buying the stock or buying call options. Tickeron's A.I.dvisor looked at 78 similar instances where the indicator turned positive. In 53 of the 78 cases, the stock moved higher in the following days. The odds of a move higher are at 68%.
Technical Analysis (Indicators)
Bullish Trend Analysis
IBM moved above its 50-day moving average on September 11, 2026 date and that indicates a change from a downward trend to an upward trend.
Following a +1.38% 3-day Advance, the price is estimated to grow further. Considering data from situations where IBM advanced for three days, in 248 of 375 cases, the price rose further within the following month. The odds of a continued upward trend are 66%.
The Aroon Indicator entered an Uptrend today. In 171 of 263 cases where IBM Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are 65%.
Bearish Trend Analysis
The Stochastic Oscillator entered the overbought zone. Expect a price pull-back in the foreseeable future.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where IBM declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 54%.
IBM broke above its upper Bollinger Band on September 11, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
Fundamental Analysis (Ratings)
The Tickeron Valuation Rating of 9 (best 1 - 100 worst) indicates that the company is seriously undervalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (6.653) is normal, around the industry mean (7.416). P/E Ratio (21.607) is within average values for comparable stocks, (71.608). Projected Growth (PEG Ratio) (2.301) is also within normal values, averaging (1.396). Dividend Yield (0.028) settles around the average of (0.026) among similar stocks. P/S Ratio (3.351) is also within normal values, averaging (147.834).
The Tickeron SMR rating for this company is 29 (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Profit vs. Risk Rating rating for this company is 45 (best 1 - 100 worst), indicating well-balanced risk and returns. The average Profit vs. Risk Rating rating for the industry is 93, placing this stock slightly better than average.
The Tickeron Seasonality Score of 50 (best 1 - 100 worst) indicates that the company is fair valued in the industry. The Tickeron Seasonality score describes the variance of predictable price changes around the same period every calendar year. These changes can be tied to a specific month, quarter, holiday or vacation period, as well as a meteorological or growing season.
The Tickeron Price Growth Rating for this company is 56 (best 1 - 100 worst), indicating steady price growth. IBM’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron PE Growth Rating for this company is 91 (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
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a manufacturer of various computer products through the use of advanced information technology
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