IBM: The Good, the Bad and the Ugly

The stock has fallen 22% this year, which is not too bad given the troubles in the market. However, the 52-week range is $79 to $131, a 40% swing. It is quite reasonable to suggest that this stock has a valuation range of around $70 to $90, based on IBM's past earnings and performance. In the 1987 to 1990 recession, the stock fell close to 70% from its high -- down from about $45 to $15. In 2001, it dropped from approximately $135 to $50, a 60% decline. The 2001 recession was milder than what we will experience soon, so IBM could trade down from its high of $131 to levels below $50.

There are strategies that IBM is implementing that address the current downturn, such as introducing lower-cost products and providing easier financing for customers. But the rationale that corporations will still buy IBM's products to increase efficiency and reduce operating costs during the downturn is similar to what was said in 2001 but never happened.

The Street.com ratings gives IBM a B-minus rating, down from the start of the year, when it held a B-plus rating. Our models may further lower IBM's rating as we move into next year.