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Strong buys for Big Blue

Shares of IBM hit its 52-week high today in trading, as investors snapped up what has been an under-valued stock.

Tech Industry

Shares of IBM (IBM) hit its 52-week high today in trading, as investors snapped up what has been an under-valued stock.

IBM traded as high as 159 a share in morning trading, up 3.1 percent from its close of 154-1/8 on Tuesday. The stock finally settled down at 152-7/8 a share, down 1-1/4 from the previous day.

Today's high of $159 a share is a five percent increase from its close of 154-1/8 on Tuesday. The stock has soared a total of 16.2 percent since its close of 136-7/8 on Thursday.

Adding fuel to the fire were comments made today by an IBM executive who touted the continued strength of the business computer market at Comdex. Although IBM has already bandied about the same information on Wall Street, the widely watched and attended Comdex forum played a small role in the stock's rise, analysts said.

The market's overall gains also helped IBM's good fortunes, which were rejuvenated when analysts raised their target stock price for Big Blue in 1997.

But the strongest incentive to buy now, analysts say, is a collective belief among investors that IBM is simply underpriced. It's a realization that has gained momentum over the past two weeks and especially in the last few days.

"There's been a revaluation by portfolio managers who see the stock's [price-to-earnings&$93; multiple is undervalued," said Michael Geran, an analyst with Pershing, a division of Donaldson Lufkin & Jenrette. "In part, people felt they wanted to own the stock going into next year. In part, its a good stock, technically speaking. In part, people felt the multiple was too narrow."

Magellan, the nation's largest mutual fund, has been increasing its stake in the stock since September, putting IBM in its top-ten list.

Stephen Dube, an analyst with New York-based Wasserstein Perella Securities, noted that since early November investors have viewed IBM a cheap stock to buy in relation to Intel and Microsoft.

In early November, Intel has been trading about 22 times its earnings, while Microsoft has been at 36 times its earnings. (Intel is an investor of CNET: The Computer Network.)

Meanwhile, IBM had been trading at 12 times its earnings. IBM's stock has since shot up from 128 a share on November 4, a 20 percent rise based on Tuesday's close.

"The stock was selling at a ridiculously low multiple to what other tech stocks were selling and in a market that was rising," Dube said. "Investors were finally hit over the head and realized they should own the stock. It still has a way to go to reach its estimated 1997 level."

Merrill Lynch analyst Daniel Mandresh triggered the surge Friday when he raised his IBM target price to 195 over the next 12 months. That was up from his earlier estimate of 155.

"This has been like a spark that has landed in the hay," Dube said.

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