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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.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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