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IBM shares approach five-year high

Analysts tell investors to buy IBM shares, as the company's growth strategy starts to pay off
Written by Colin Barker, Contributor

The technology sector has yet to recapture the excitement of the dot-com era — certainly not as hot the pre-dot.com collapse days — but there are signs of growing confidence in the sector.

In the case of IBM, whose performance is usually a good indicator of the wider health of the industry, its share price is only a couple of dollars below its highest price in five years. It had another boost on Monday when financial powerhouse UBS raised its rating for IBM from Neutral rating to Buy, and also promoted EMC from Neutral to Buy 1.

Over the last few months, IBM, like many technology stocks, has seen its share price advance steadily, from below $75 (£38.65) in the middle of the year to $98 (£50.50) at the close of business on Monday afternoon. It approached the $100 (£51.53) level twice in 2005, but has not been above that level since 2002.

"We are upgrading our rating on IBM... given improving fundamentals in its core businesses as well as help from an active software-acquisition strategy," UBS analysts wrote in the research note. "Despite its recent share-price appreciation, we believe IBM's current valuation is still at an attractive level, given improving software and hardware businesses."

Meanwhile, UBS analyst Benjamin Reitzes promoted EMC to Buy 1, writing in his own note that the company was "poised to benefit from solid storage demand as well as an ongoing mix shift to higher-margin software... With software increasing as a percentage of total sales, and benefits from restructuring, EMC is well positioned for margin expansion and mid-teens organic growth."

EMC's shares rose nearly 4 percent, to $14.15 (£7.30) on the advice from UBS, while fellow storage vendor Network Appliances also saw its shares rise 3 percent yesterday.

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