I Trimmed my Largest Holding...

By: EBS Invests 

When people ask me, what stocks are my favorites; I list some generic picks from my portfolio that most people should own. Some of these include Microsoft (MSFT), Lam Research (LRCX), American Express (AXP), Canadian Pacific Kansas City (CPKC), and Apple (AAPL). All of these are great stocks, and they’re also some of the best performers on the market. However, nothing comes close to my love and appreciation for International Business Machines (IBM). It is my absolute favorite stock, and I personally regard it as the best company on the planet. **

My love for this stock began as a young boy; my grandfather worked for the firm for over 30 years in its glory days. When my grandfather passed away, my grandmother acquired all of his shares that he accumulated while working. It was here, starting at the age of 15, that I would listen to every single earnings report until this day. I have seen the turnaround in this stock, and it’s amazing to see the progress each quarter. Starting my freshman year of college (fall 2022), I wrote an in-depth stock analysis on IBM. It's over 7 pages; if you wish to read it, please email me and I’ll send you a copy. Email is located at the bottom of the newsletter.

You are now wondering, why, EBS, why would you sell your favorite stock? I like to explain it this way: Have you ever had an old car that you love, but financially it does not make sense to keep? IBM is that way for me. I had over 21.8 shares, currently valued at ~$3,480. It represents the largest position in my portfolio. The stock has recently soared to a new 5-year high! The stock has momentum and has broken out of my technical analysis bands seen below. It is unlikely for it to keep soaring at this rate; however, I can’t see the future with a crystal ball.

I trimmed my Big Blue position by 6 shares, or roughly 27% of my collective position. The reasoning behind this is as follows: I’ve always wanted to lower my exposure to IBM, as it is not the best stock for growth at my age. Secondly, I want to add to my core investments, such as SCHD, SCHG, and SCHX. Lastly, selling at a 5-year high offers a very high rate of return (ROR). Additionally, I will still retain 15.8 shares of IBM, as I fully believe in the turnaround story and the potential for a higher stock price. I just personally wanted to limit my exposure to the stock, return the capital to core investments, and net a great return on my investment.

I will not get into the nitty-gritty of IBM's turnaround story; I will, however, further explain the intrinsic reasoning behind the sale. Big Blue anticipates 3%-5% consistent growth in the coming quarters. Keeping that in mind, I plugged in 5% growth into my intrinic value calculator and got an intrinsic value of ~$122.34. If rates were back to normal levels, IBM's intrinsic value would be much higher, but so would the rest of the SP500.

As much as I love IBM, and I still do believe in the turnaround, I personally wanted the capital to be invested in core investments. Additionally, the low intrinsic value and the 5-year high are deemed a great exit for a trim. If you do plan to sell your shares of IBM, I would recommend not exceeding 25% of your position currently in a sale. Keep farming the dividends and watching the stock. If you do a sale, just be smart with where you deploy the capital into other opportunities.

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//See you in the next edition

EBS Invests 2023//

NOT A FINANCIAL ADVISOR.

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