Why IBM Stock is Poised For Another July Jump

International Business Machines Corp. (NYSE:IBM) is historically one of the top July stocks

Jun 30, 2016 at 3:29 PM
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With a new month (and quarter, for that matter) just around the corner, traders may be starting to look at seasonal trends. Specifically, which stocks perform the best in July? Schaeffer's Senior Quantitative Analyst Rocky White crunched the numbers from the past 10 years -- looking specifically at stocks that trade at least one million shares a day or have weekly options -- and came up with a list of the top 25 performers. Below that list, we'll take a closer look at one of the top July stocks, blue chip International Business Machines Corp. (NYSE:IBM).

best july stocks june 30

As you can see in the chart above, IBM truly is one of the top July stocks. Over the past decade, it's been positive nine times during the month, with an average gain of 4.4%. In fact, 2015 was the lone outlier, and even then, the loss was a modest 0.4%. Below, we break down IBM's yearly performance even more closely.

IBM July returns by year 

If IBM can build off of this encouraging history, it will extend its impressive year-to-date run. So far in 2016, the tech stock has advanced 10% at $151.37, including today's 2% pop. Should this play out, outsized gains could be in the cards, considering much of Wall Street is bearishly aligned toward IBM.

Let's start in the options pits. There, we see that IBM's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio is 0.94 -- in the bearishly skewed 71st annual percentile. Moreover, the stock's Schaeffer's put/call open interest ratio (SOIR) is 1.51, with puts outstripping calls among options expiring in the next three months. Additionally, this SOIR ranks above all but 7% of comparable readings taken in the past year, confirming the put-skew. From a contrarian perspective a capitulation among option bears could fuel IBM's fire.

Moving on, nearly two-thirds of analysts tracking this top July stock rate it a "hold" or worse. Plus, IBM's consensus 12-month price target of $144.18 rests south of the current perch. In other words, the shares could benefit from a well-deserved round of upgrades and/or price-target hikes.

Last but not least, International Business Machines Corp.'s (NYSE:IBM) short-interest ratio rests at 7.10, translating to more than a week's worth of pent-up buying power, at the stock's average daily volume. Long story short, there's plenty of sideline cash available to trigger a potential short-covering rally.

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