bill, let me start over.
1. buying back stock is great when a stock goes up.
2. buying back stock isn't good when a stock goes down.
no need to remind me of 1 as i'm aware of that. i'm also aware how fast things can turn for the worse. or the better. my only point is that ibm is taking a big risk.
that risk is merely compounded by their increasing debt. $5 billion isn't chump change. you have to pay interest plus the principle at some point in the future.
it is fine and dandy that they are borrowing money to loan to others. it would appear that the only reason they have to borrow money is b/c they are spending their own money to buy stock. that is my only point and it has yet to be refuted.
IF the economy slows, IF employees decide stock options suck and want cash instead (it happens - ask the disk drive makers), IF demand slows significantly, IF they are front loading service revenue, IF they are unable to increase growth rates beyond 7%, IF japan repatriates their cash by selling bonds (driving up our rates), IF the euro competes with dollar and drives up bond supply (driving up our rates) THEN the current stock may not hold up. IF times revert to the mean then a 7% growth rate might be worth a 10 pe. that is IF the growth rate continues and doesn't shrink.
now, maybe none of this stuff ever occurs. a 23 pe, imho, assumes NONE of these things occurs. i just think the risk/reward ratio is not favorable for long positions. that is jmho and my stock buyback / loan issue was just to highlight the added risk involved.
but hey, the probability of ibm's stock price doing well is greater than winning the lottery for sure.
good luck. it is jmho that, over the intermediate term (1-2 years), you will need luck. but hey, better lucky than good ;-) |
