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7 Reasons IBM Stock is a Buy

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Shares of IBM have slumped over the past few years, creating an opportunity for long-term investors. Here are seven reasons why investors should consider IBM.

Published in: Economy & Finance, Technology
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7 Reasons IBM Stock is a Buy

  1. 1. 7 Reasons is a Buy 1
  2. 2. 2 IBM has had a rough few years
  3. 3. 3 But for long-term investors, there are plenty of reasons to take advantage of IBM’s stock slump
  4. 4. 4 1) IBM’s competitive advantage • Roughly 80% of IBM’s revenue comes from clients deploying hardware, software, and services • IBM’s ability to deliver integrated solutions is the key to its economic moat • Industries like banking and retail depend on IBM’s mainframe systems, and switching to a competing solution would be infeasible in most cases
  5. 5. 5 IBM clients include • More than 90% of the top 100 banks • 9 of the top 10 oil and gas companies • 80% of the global top 50 retailers • 92 of the top 100 healthcare organizations • 9 of the top 10 telecom companies • Hundreds of state and local governments
  6. 6. 6 2) An attractive valuation • With 2015 operating EPS expected to be $15.75 to $16.50 per share, IBM trades at a forward PE ratio of about 10 0 2 4 6 8 10 12 14 16 MSFT QCOM INTC CSCO AAPL IBM Forward PE Ratio Data from Morningstar
  7. 7. 7 3) A fast growing cloud • IBM is investing in strategic imperatives, areas that will drive most of its growth going forward • IBM generated $8.7 billion from its cloud business over the past twelve months, including hardware, software, and services • This number grew by 50% year-over- year during IBM’s latest quarter, and IBM is actively making strategic acquisitions • IBM’s cloud revenue delivered as service has reached an annual run rate of $4.5 billion
  8. 8. 8 4) A bona fide dividend stock 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 IBM Quarterly Dividend Quarterly Dividend Dividend Yield
  9. 9. 9 One of the best big tech dividends Company Dividend Yield International Business Machines 3.35% Microsoft 2.65% Cisco Systems 2.98% Apple 1.80% Intel 3.32% Qualcomm 3.05% Dividend yields based on most recently announced dividend payment
  10. 10. 10 5) A big push into healthcare • One of IBM’s largest opportunities is the healthcare industry • Watson, IBM’s machine learning system, is being used by cancer institutes to analyze vast troves of data and provide personalized treatment options • IBM’s Watson Health unit has entered partnerships with Apple, Medtronic, Johnson & Johnson, and CVS Health • The $700 million acquisition of Merge Healthcare combines Watson with Merge’s medical imaging management platform • IBM’s goal is for Watson to become a critical tool for the multi-trillion dollar healthcare industry
  11. 11. 11 6) Software could raise margins • Over the past decade, software has grown to represent more than a quarter of IBM’s revenue • Software carries far higher margins than any other part of IBM’s business • IBM’s strategic imperatives are about 50% software, and as they grow as a percentage of IBM’s total revenue, profits can rise even without much revenue growth Segment Q2 2015 Pre-tax margin Software 34.4% Global Technology Services 15.1% Global Business Services 14.7% Hardware 11.8%
  12. 12. 12 7) The potential of OpenPOWER • IBM’s Power servers have been losing market share to x86-based systems for years • The OpenPOWER foundation was started in 2013 in an effort to build an ecosystem around IBM’s POWER architecture in the data center • There are now 147 OpenPOWER members, and over 1,600 popular Linux applications, like MongoDB, Apache Spark, and Hadoop, now run on the POWER architecture • OpenPOWER has the potential to challenge Intel in the data center Major OpenPOWER Members
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