Over the years we have seen stalwarts such as IBM and Walmart replaced by the likes of Apple and Amazon as indicators of US economic activity. These giants have become the bellwethers of the US stock market leaving the likes of IBM and Walmart in their wake. Interestingly, having fallen back from around $180 last year to a low of $140 in September 2017, IBM shares then rallied to touch just over $160 in October. So, is there still value in the darling stocks of yesteryear?
IBM share price
Recent figures from IBM surprised market analysts on the upside for the first time in “many moons”. The shares initially rallied to $160 but have since fallen back to $152. The problem for stocks such as IBM, and other darlings of yesterday, is the fact that there are so many “stale bulls” still holding stock from the good old days. As we saw the IBM share price, any short-term rally is seen as an opportunity to bail out and use funds better elsewhere. So, until these “stale bulls” have fallen by the wayside perhaps we can expect selling into any kind of strength.
Times do change
In years gone by companies such as IBM and Walmart could literally dictate the future of their relevant industries. They were the one setting the benchmarks, they were the leaders with the rest following and for some time they could do nothing wrong. It is debatable as to whether the technology revolution simply smothered the likes of IBM and Walmart are whether there were too slow to react. Whatever the case, these companies were simply ditched by active investors and the technology giants we see today took their place.
In some ways this switch to more technology-based industries is dangerous because many of them do not yet make any profits. We saw the likes of Snapchat rising by more than 50% and then suddenly collapsing to a sub-float price. The shares have recovered a little since hitting rock bottom but they are still below the original flotation price and unlikely to power ahead in the short to medium term. Many would argue that this episode perfectly illustrates the appetite for technology shares at the time and the fact that many people were buying the name as opposed to buying the business.
Bread-and-butter stocks
There will always be investors who are focused on technology shares and unlikely to look anywhere else for their equity exposure. Those long-term investors who continue to post impressive results will obviously have to have an eye on technology shares but they will also look at the bread-and-butter stocks such as IBM and Walmart. Some would argue the likes of IBM have been oversold, some would suggest they have been overtaken by the new kids on the block but IBM is still there, still surprising on the upside and still a major player.
Perhaps the likes of IBM would do better if they were loss-making? That way, like Snapchat, there would be no traditional method of valuing the shares and maybe this would bring back the technology investors who currently look elsewhere? Sound bizarre, well more surprising things have happened!