Short VMWare and Buy IBM
Jul
24
Written by:
7/24/2008 9:43 PM
Short VMWare and Buy
IBM
A technology trade that will be somewhat market neutral is
the combination of shorting VMWare (VMW) and being long International Business
Machines (IBM). If the market stays in a trading pattern you will be able to
profit on both the long and the short side of this trade.
VMWare Disappoints
VMWare has
fallen rapidly from its post IPO high of $125 a share to a recently low of
$34.75. In its recent quarterly report the company matched lowered expected
earnings but gave a third quarter revenue estimate that scared investors. A
number of issues continue to derail the company creating its lower revenue
views; Poor execution, economic slow downs in both the US and in Europe,
a CEO change, and increased competition.
IBM Tech Strength
IBM on the
other hand has shown strength in a tough market the last couple of days and is
within reach of a new 52 week high daily. On July 18th the company
reported 2nd quarter earnings that beat estimates and delivered
service numbers that impressed Wall Street. Its internal reach and a
combination of software and hardware makes the company better able to withstand
the current economic troubles in the US
and Europe. The company also raised its
earnings forecast for 2008 by 25 cents a share leading to four day rally in the
stock price.