Why IBM could be a buy ahead of earnings

Ahead of IBM earnings on Thursday, two traders lay out their bull and bear cases for "Big Blue."

The stock is now at a point where many "didn't think it could go," Tim Seymour, managing director at Triogem Asset Management, said on CNBC's "Power Lunch."

"Slowly, that business is being transformed. We know about the cloud business. The reliance on hardware and infrastructure — no longer," he said.

Seymour argued IBM is faring better than cloud application company Oracle because, in part, of its artificial intelligence software Watson.

This is "a company that's slowly doing what it's supposed to do," Seymour said. When contrasted against other big-tech stocks, "you can make a valuation argument for IBM."

Shares of IBM on Friday closed in on the level at which Berkshire Hathaway's Warren Buffett first bought the stock in 2011, meaning the investment would finally begin to turn a profit. IBM closed Friday at $167.34 per share.

"Fast Money" contributor and Private Advisor Group's Guy Adami is much more bearish on the stock, noting its declining revenue stream.

Investors owned IBM four or five years ago because the company "had vision," he said on "Power Lunch," but at this point, he remains doubtful on the name.

IBM earnings must "knock it out of the park" Thursday, Adami said, adding its valuation would make it look significantly overvalued if the company reports weak quarterly earnings.

Based on the prices of options expiring on Friday, traders expect the see the stock move less than 4 percent on the earnings event.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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