Clearly, the impact of the news hasn’t been felt yet, and with the lack of guidance, we’ll have to wait until solid numbers are offered on the earnings call in order to determine how bad the near-term situation is.
So how about IBM…?
Even Technology’s Sweetheart IBM Isn’t Quite So Darling
IBM has received praise among technology groupies and investors in general for pre-announcing a decent quarter, as earnings-per-share jumped 22% to $2.05.
The company also issued full-year guidance that indicates fourth quarter estimates are expected to be in line with the Wall Street consensus.
Like SAP, this appears to be a very clean quarter for IBM… on the surface.
Dig a little deeper into the press release, however, and we find a reason to pause.
The company also mentioned that its Free Cash Flow for the first nine months of the year was $6.4 billion and that its cash balance will be $9.8 billion. Again, these are healthy numbers on the surface, but if you make a conservative estimate about the amount IBM invested in Capital Expenditures during the third quarter, the Free Cash Flow number indicates that Cash from Operations actually dropped around 75% for the quarter.
It’s likely that the company used its balance sheet to close deals. However, the stock most likely won’t be penalized, since most sell-side analysts don’t look closely enough at the cash flow statement. After the earnings call, however, there is the potential for the stock to sell off.
3 Safer Ways To Invest In The Technology Sector
As I’ve noted in previous columns, I believe there are opportunities to buy technology stocks if you have a long-term outlook.
In the current climate, however, the best strategy to use is to buy the shares, then buy a put (known as a “married put”) as a hedge against the stock position.
You can also buy technology sector-specific ETFs, or a market index like the PowerShares QQQ Trust (Nasdaq: QQQQ), which eliminates the risk from a specific company.
As the market indexes eventually find a bottom and rebound, tech company shares - and indeed shares of other companies - will also stabilize over the next 12 months.
However, if a highly influential heavyweight company like General Motors (NYSE: GM), which plunged 33% to its lowest level since 1950 on Thursday, or Morgan Stanley (NYSE: MS) is forced into bankruptcy (despite GM defiantly stating that this won’t happen), there’s a real possibility that we could see a four-digit decline for the Dow Industrials index.
In sum, the longer-term trend is up but the path to stability may hide some sizeable potholes. That’s why it’s essential you give yourself the best chance to emerge from this mess with as few bruises as possible.
