International Business Machines Corp. (NYSE:IBM) continues to be the center of attention on Wall Street. In the wake of Duquesne founder, Stan Druckenmiller in an interview with CNBC saying the company’s problems are secular and should weigh in on the stock in the long-term. Druckenmiller was responding to Warren Buffett, who remains a strong supporter of the company despite the ongoing decline in sales and earnings.
Joining the debate was Hedge fund manager, Bill Miller who responded to Druckenmiller sentiments, saying the point of concern at the moment should be whether the stock is undervalued and not whether it is grappling with secular or cyclical problems. Druckenmiller had affirmed that International Business Machines Corp. (NYSE:IBM) should not be carrying buybacks at the moment something that Miller does not agree with.
Belpointe Asset Management, David Nelson, believes Druckenmiller is right on this one, affirming that International Business Machines Corp. (NYSE:IBM) is in a secular decline seen by the company’s sales missing estimates in recent quarters.
“Stan is right, I think he is very right. They are in the midst of a secular decline and regardless of whether you think the stock is cheap or not; it is cheap and deserves to be cheap. I suspect that this company given it has no growth, it’s been declining revenue declining earnings. [..] Growth has slowed, and they are now going negative this year, they are actually going to earn less money this year,” said Mr. Nelson.
IBM deserves a multiple of less than 10 according to Nelson on the ongoing decline in earnings and revenues, which should translate to the stock trading at the $140’s range. The cloud has been mooted as a possible solution that should lift International Business Machines Corp. (NYSE:IBM) from its current woes, which Nelson believes would take up to a decade to see substantial gains even on a 15% growth rate.
The buybacks are a waste of money according to Nelson as they average $13 billion annually meaning departments like R&D, building of new plants and developing of new products continues to be suppressed.
Driven by the motto of never betting against Buffett, Gerber Kawasaki, Ross Gerber, shares the same sentiments as the billionaire investor and Miller. Affirming that International Business Machines Corp. (NYSE:IBM) is relatively cheap despite its ongoing woes on earnings front.
“International Business Machines Corp. (NYSE:IBM) is cheap it is ten times earnings in a nineteen times market. Everybody hates it; it’s all this things but yet it has been around forever and now they are investing in more growth areas like the cloud and supercomputers. Where they can really start to beat, and we have better global macro tailwinds coming which will help IBM moving forward,” said Mr. Gerber.
Gerber, however, agrees with Nelson affirming that International Business Machines Corp. (NYSE:IBM) should be using its capital, investing for the future and not carrying out the huge buybacks.
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