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Thursday, August 17, 2006

IBM Is Fine

Stocks: (IBM)(HPQ)

The press seems very excited by the notion that Hewlett-Packard may pass IBM as the largest US computer company. Maybe IBM doesn't care.

IBM made over $2 billion in the last quarter on revenue of $21.9 billion. HP did $1.5 billion on revenue of of of $21.9 billion. Which margin would investors rather have?

HP's forward P/E is 15.5. It's price to sales is 1.1. IBM's forward P/E is 12.5 and the price to sales ratio is 1.4. The critical difference is that IBM trades in the middle of its range at $79.30 on a 52-week high/low of $89.94/$72.73. HP trades at the top of its range at $36.50 against a 12 month low of $25.53.

As 247wallst editor Jon Ogg pointed out yesterday, HP has no room to slip. Its next quarter must be spectacular. And, the quarter after that, and the quarter after that. IBM may well rise on very modest positive news.

It will be difficulat for HP to run much higher now. The stock has not been this high since 2001, and is up from $12 in late 2002. For a company this big a triple is a big deal.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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