Event: Technology behemoth IBM (IBM) reported results after the market closed on Tuesday. IBM said it made a profit of $3.33 per share in the quarter ending in September. Analysts were expecting earnings of $3.61 per share. Revenues also fell short of analyst estimates. IBM had sales of $24.75 billion versus the estimate of $26.28 billion. Shares of IBM are down 4% in morning trading on Wednesday.
Analysis: IBM is much more than a personal computer business. It is a diversified information technology service provider. The fact that sales have missed estimates now for two straight quarters should be worrisome to investors. It certainly has been a good ride for IBM. Recent weakness may be a natural pause. The company certainly has proven its ability to grow profits in the past. It is still growing, but analysts expect near-single-digit growth in 2013. With a stock price that trades for a double-digit multiple of earnings, it only seems natural for IBM to pause here. I would expect shares to be soft over the next few months before settling at a new bottom. It will take the January report for a complete reversal. Until then it’s safe to be short IBM.
Action: Consider owning puts on IBM up to its next earnings report in January.
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