IBM Could Push Dow Upward

ARMONK, N.Y. ( TheStreet) -- IBM's ( IBM) success in avoiding the worst of the recession is going to reap benefits for the broader stock market, according to analyst firm Auerbach Grayson.

The tech bellwether, which recently reconfirmed its 2009 and 2010 profit forecast, forced its margins up during the downturn, despite falling revenue and an uncertain spending climate. The company's stock has also risen more than 44% this year as investors warm to the company's aggressive control expenses and margin expansion.

Auerbach Grayson analyst Richard Ross says that IBM's shares, which currently trade around $121, will continue their upward trajectory.

"IBM is quietly in a very strong technical position which has the stock on the verge of a potentially explosive breakout," he wrote, in a note released Wednesday. "A move above $120.88 could propel the shares to a test of the old high around $131 at a minimum."

The Armonk, N.Y.-based firm's strong presence on the Dow could also impact the wider stock market, according to Ross. With its 9.3% weighting equal to that of GE ( GE), Pfizer ( PFE), Bank of America ( BAC), Intel ( INTC), Cisco ( CSCO) and Microsoft ( MSFT), IBM could drag the Dow up on its own.

"The math alone is enough to drive the market higher (not that it needs any help)," wrote Ross. "IBM is well positioned as the global economic recovery unfolds and the growth story resumes in earnest."

In its recent second-quarter results, IBM boosted its pre-tax margin by four points, its biggest margin improvement since it sold off its PC business to Lenovo in 2005. Despite seeing revenue dip 3% year-over-year, the firm also expanded its gross margin by two points.

CEO Sam Palmisano has come under fire in some quarters for overseeing layoffs and shifting jobs to lower-cost parts of the world such as India. The executive, however, was rated the top "recession-busting" CEO in TheStreet.com's survey of its readers, clinching almost 40% of total votes.

-- Written by James Rogers in New York

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