Tracking IBM (NYSE: IBM) over the last few years, shares have moved predominantly sideways, currently showing just a 1.5% increase year-over-year. In times of economic stability, investors might turn their nose up at a stock that appears stagnant in comparison to its high-growth competitors; but as we all know, the current economic landscape calls for cautious, low-risk portfolios.
At a time when tech stocks are struggling under rising inflation and growing macro concerns, IBM shares seem to weather sentiment reversals, sell-offs and market rotations. Morgan Stanley analyst Erik Woodring noted this morning that IBM is possibly the safest play in current conditions, using the word ‘hide’ to illustrate the coveted nature of IBM’s share price, largely resilient to wider trends.
Woodring upgraded IBM to Overweight from Equal Weight with a price target of $150 per share, a $3 increase from the previous target. The analyst continued to explain how IBM acts as a shelter for low-risk investors amid growing macro concerns weighing on many market sectors; reminding investors that IBM is generally negatively correlated with PMIs.
The analyst continues by explaining that the IBM upgrade is a relative call based on the company’s strong positioning to weather a “macro storm”; something that is hindering normal segment growth. Whilst hardware budget cuts are expected, IBM is likely to outperform in the IT sector due to over half of its revenue derived from more defensive recurring revenue streams, with only 20% of IBM’s revenue tied to hardware – on this basis, IBM is well situated to outperform for the rest of 2022.
IBM shares are currently trading at a daily gain of 2% as investors pay attention to the ‘safe’ play in the midst of market chaos. Well positioned for the months to come, Erik Woodring was right in pointing to the IT giant as a low-risk but well-performing stock pick. If investors are to weather the inflating macro uncertainty, long-term positioning but short term strength are equally compelling to a successful portfolio.
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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.