No one is shorting IBM on its 100th birthday, but short sellers are active elsewhere in its market

Congratulations to International Business Machines (NYSE:IBM), which reaches its centenary today: an impressive milestone for this $204bn company. The European chief executive said there were three themes in their cross hairs. We will therefore run the rule over investor sentiment towards data mining, cloud computing and the social/environmental impact that these companies are having given that these are his areas of focus. We will forgive IBM the fact that, in the 1940s, their CEO predicted there was only enough room for five computers in the world! Stocks covered include: Synaptics (NASDAQ:SYNA), Dell (NASDAQ:DELL), Salesforce (NYSE:CRM), Accenture (NYSE:CAN), LogMeIn (NASDAQ:LOGM), Rackspace (NYSE:RAX), Vedanta (LON:VED).

Firstly, we must point out that IBM is such a steady, well run business that it seldom features any more than a trickle of short selling. Less than 1% of its shares are borrowed while funds who lend own 21% of the company. This proxy for institutional sentiment, while not that high, has been rising over the last 6 months.

The three current areas of focus for IBM are not surprising but this did not stop “BBC Today” http://www.bbc.co.uk/iplayer/episode/b011vnph/Today_16_06_2011 from poking fun at the way this firm abandoned its grip on the personal computer market. If IBM was selling more ThinkPad laptops (created in 1992), etc., one wonders if Apple and Dell would have such a large market share. On the other hand, I admire anyone who has the courage to walk away from areas that they believe are crowded with declining margins. Dell also has low short interest, but this has always been the case having come down from 2.5% to 1% over the last year.

Elsewhere, the average short interest in the Computer Hardware sector is above the overall S&P 500 average of 3% versus 2.5% - so perhaps IBM was right to have excited this business? The major shorts in this sector are Synaptics with 30% of its shares on loan and Logitech with 20%.

Other companies specialize in providing advice on how to harness the information they have on their customers to drive sales trade on high multiples. They include contact manager, Salesforce whose short interest is often high given a PE ratio of 500! It sees only 6% of the total shares being borrowed implying that those value orientated short sellers have given up!

Other firms offering the kind of advice that IBM offer in the information technology game include Accenture (ACN). There is outright positive investor sentiment here with short interest low at 0.4% of total shares and long only funds adding more Accenture to their portfolios. This has risen from 80m shares to 140m shares over the last year, which is 19% of the company. Accenture is a minnow compared to IBM in terms of market cap, which explains why funds are marginally more optimistic about its prospects.

Turning to cloud computing, the wind is most definitely blowing in this direction, which has preceded Apple’s recent high profile move into this market. LogMeIn allows small companies to get their computing and software needs from a cloud. This firm is heavily shorted but shorting has come down from 19% to 10% in the last eight weeks. Another related firm with swelling profits is Rackspace (RAK). Rather like the situation in Salesforce, the short sellers have been falling away so that today’s short interest is 8% of total shares, well below the 16% in January.

The final area Stephen Leonard spoke about was how to advise companies on growing their profits without causing any environmental or social damage. Companies are increasingly paying for research on their so called ESG footprint and UK resources firm, Vedanta, has been highlighted in some parts (e.g Reprisk) as being somewhat damaging to its locale. Short selling in Vedanta has greatly reduced from 8% to 4% since March.

Will IBM be around to celebrate another 100 years in 2111? Given how it has successfully adapted and evolved, the chances must be high.