Which stagnant tech stock will shake its funk?

It's old tech versus new tech in a race for recovery.

By InvestorPlace May 17, 2013 11:41AM

Image: Money and computer © Angel Muniz JupiterimagesBy James Brumley

Although few seem to appreciate it, the past few weeks have been nothing less than amazing for stocks.

Yes, the S&P 500 ($INX) as well as the Dow Jones Industrial Average ($INDU) have both hit new all-time highs. But the move into uncharted territory is even more impressive in that it materialized on top of an already-frothy 17% rally. All told, stocks have advanced 22% since the November low, with hardly even a blip along the way.

Most amazing of all, however, is that the market has rallied to new highs without the help of technology bellwethers Apple (AAPL), International Business Machines (IBM) and Amazon (AMZN). Indeed, stocks have managed to do the unthinkable despite the fact that these three names have been working against the market. Each has been lethargic at best of late, if not outright bearish.

Nothing lasts forever, though, and sometimes misery can yield opportunity. All three of these stocks will eventually turn things around ... but one of them is more apt to do it before the other two.

International Business Machines

To call a spade a spade, IBM had spoiled its investors.

Up until the first quarter of the year, the tech company had posted nine years' worth of quarterly revenue increases. It also topped estimates in almost every single one of those quarters.

So, when it finally stumbled last quarter by only earning $3 per share versus expectations of $3.05, the surprised market panicked and sent the stock 8% lower in just one day. Although shares have regained most of that loss since then, IBM is still well under its mid-March highs, and not looking particularly compelling.


For more than a decade, the market has given Amazon a pass, overlooking expenditures that seemed to perpetually grow in lock-step with revenue (see InvestorPlace). For whatever reason, however, investors seem to have finally had enough, sending AMZN lower to the tune of 7% in late April after unveiling last quarter's earnings.

Funny thing is, earnings weren't bad. The pros were only expecting a profit of 8 cents per share, but Amazon.com turned in 18 cents. Revenue grew by 22%, and operating margins widened to 26.6% -- the best Amazon had seen in more than a decade.

So what's the problem? While operating margins might be strengthening, net margins have slumped to a paper-thin 1.1% last quarter … with no end in sight, given the company's penchant for big spending.


Like it or not, with Apple being the highest-profile company in the world, the stock and the underlying company are loosely linked, at best.

Instead, the stock is the story -- and it's not just a reflection of traders' ever-changing opinion of the company, but also a driver of that opinion. If shares are headed higher, the rhetoric tends to become bullish. If shares are falling, the chatter takes on a bearish tone.

That dynamic has very much worked against Apple since September of last year, sending the stock lower by at much as 40% -- a downtrend that appears to have been renewed just this week -- now that competitors are starting to catch up on the smartphone front.

And the winner is …

No fanfare needed. IBM is your best bet among the three tech names in question.

Even within the technology sector, there's chic "new tech" and stodgy "old tech." Amazon and Apple fall into the 'new' category, which is fine … except it means investors who follow, buy, and sell those stocks tend to be driven by stories, growth forecasts, peer opinion. (Not to mention the fact that many of those investors are probably also Apple and Amazon customers.)

Now that the crowd has turned a critical, questioning eye toward both names, that psychological freight train is going to be tough to stop.

IBM, on the other hand, is "old" tech, boasting a long history with old-school investors and institutions -- the crowd that can actually pick the stock up and start carrying it again once they're satisfied IBM will get back into a decade-long growth groove.

Yes, Big Blue is tiptoeing into modern consumer technology arenas like cloud and mobile, but it's leveraging a much more established name to wedge its way into those newer markets. Investors will soon figure out that last quarter was a necessary growing pain, and will be quick to forgive. They won't be as encouraged with Amazon and Apple now that their vulnerabilities have been exposed.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

More from InvestorPlace



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

120 rated 1
268 rated 2
439 rated 3
709 rated 4
641 rated 5
609 rated 6
640 rated 7
516 rated 8
272 rated 9
152 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.