Time To Load Up On Big Blue?Evan I. Schwartz
Put it this way: Even Bruce Donegan believes IBM's stock is a good buy now. A 44-year-old purchasing agent who was "surplused" in March from IBM's mainframe plant in Poughkeepsie, N.Y., Donegan is still hanging on to some shares bought at 58 when he joined the company back in 1978. He's still a bit bitter about his termination, and he has watched his "little nest egg" become littler and littler. But Donegan says he has "faith that the company will come back as a different IBM."
Other investors seem to be getting the same idea. On July 27, the day IBM's new CEO, Louis V. Gerstner Jr., announced an $8.9 billion restructuring charge and slashed the dividend, the stock jumped more than 3 points, to close at 45 5/8. It retreated the next day, to 44. But many investors think IBM's shares have finally hit bottom.
Is the worst over? Gerstner made no promises. And many analysts think an IBM buy has to be seen as a long-term gamble. In the short run, the shares could drop below 40, worries PaineWebber Inc. analyst Stephen Smith. IBM's book value is now under 35, he says. And his 1994 earnings forecast of $1.50 a share does not justify paying the company's current price.
A few analysts are bullish, however, on the rationale that IBM is switching its focus to faster-growing parts of the industry. Daniel Mandresh of Merrill Lynch & Co. says 1993 will be the first year that IBM's revenue from workstations and PCs will surpass the declining businesses of large systems and storage gear. "You buy IBM on the perception of change," he says.
Among those who are taking that advice is Michael H. Steinhardt, who heads New York-based Steinhardt Management Co. Citing "extraordinary changes in cost structure," he has doubled his IBM holdings since March, to more than 4 million shares. On July 27, he bought more. Steinhardt figures Big Blue is a big bargain.