July 14th, 2010

IBM, INTC, CSCO and the Secular Bear Market

As I look at yesterday’s chart of the 1999-today secular bear, I ask myself what charts might benefit the most, have the highest probability of an upside move with the lowest amount of downside risk and one of the first industry that comes to mind is technology. It was the tech stocks 12-15 years ago that road the wave of bubble and subsequently paid the price in a 10-15 year correction. What I’ve wondered about since this correction started last year is whether and when these stocks will bust out of their correction patterns and begin another long, bull run. Anyone who believes in charts has to look at these with some awe (click on image to enlarge):

  • IBM (IBM): Imagine is you worked for the company and were sitting on some old stock options or you had bought the stock sometime before the Tech Bubble burst. Long wait. And since then, IBM’s earnings have grown from 3.88/share in 2000 to 10.01/share in 2009 while the stock is at the same price. It’s a much different company with different revenue sources and customer base today than it was in 2000 but profits are what you pay for when you buy the stock:
    What a beautiful 11-year channel. The stock’s ability to penetrate the upper boundary at around 135 could mean multi-year, multiple orders of magnitude price appreciation.
  • INTC (Intel): Keep this chart in mind when you listen to the “talking heads” gushing on and on about how the company reported its biggest quarterly profit in a decade, 34% better than last year and “blowing away analysts estimates” by 18.6%. What has the company been doing during each of the quarters over the last 10 years?Look at that beautiful descending wedge over 10 years. A cross above the upper boundary should mean low risk, high long-term appreciation.
  • CSCO (Cisco): Whether you see an ascending channel or a symmetrical triangle, when large-cap tech stocks do beginning moving up (due to increased Asian exports?), there could be a long climb back to the 1999 high of 60 from the current 24.

I could go on and on because the list of tech stocks caught in a 10-year malaise is almost endless. Perhaps it’s a fantasy but when the stock market is finally able to free itself from the grips of the secular bear then these and other tech stocks could be in the lead.

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  • Anonymous

    "IBM 3.88/share in 2000 to 10.01/share in 2009".

    I usually look at PEG instead of PE. So we need some "G" from IBM.

  • Anonymous

    Computer is getting cheaper everyday. Deflation in tech ??