Is IBM a Good Stock to Buy?

Page 1 of 2

International Business Machines Corp. (NYSE:IBM)’s stock price did take a hit during the financial crisis, but the company has since recovered and it is currently up 84% since five years ago following a more or less successful conversion towards more of a software and services focus. Last year revenue declined 2% from its levels in 2011, but the company reduced its costs of goods sold and as a result earnings actually increased by 5%. With share count decreasing as well (over the course of 2012 IBM used $12 billion- over half of cash flow from operations- on buybacks), earnings per share were $14.53. This was up from $13.25 in 2011 and $11.69 in 2012, showing that even with an unimpressive top line IBM has been able to grow EPS.

At its current market capitalization of about $240 billion, IBM trades at 15 times trailing earnings. We would expect continued share repurchases to increase earnings per share, but we would prefer for a company to also be growing its earnings. IBM did do that in 2012, and between that and further decreases in the number of shares outstanding we do think that it is a prospective value stock. However, we would be concerned that the company’s sales shrunk last year- if that continues, then increases in net income will not be sustainable. Analyst expectations imply a forward P/E of 12, after which point IBM would need very little if any earnings growth. We should also note that IBM’s beta is only 0.6, so it is not as exposed to broader market indices as some other technology stocks.

The Top 4 Tech Stocks to Own in 2013Warren Buffett is a fan of IBM: his holding company, Berkshire Hathaway, had over 68 million shares of the stock in its portfolio at the end of December (see Buffett’s stock picks). This was by far the largest holding out of the hedge funds and other notable investors which we track in our database of 13F filings. Other owners of IBM included billionaire Ken Fisher’s Fisher Asset Management and David Shaw’s large hedge fund D.E. Shaw (find Fisher’s favorite stocks and research more stocks D.E. Shaw owns).

Accenture Plc (NYSE:ACN) and Hewlett-Packard Company (NYSE:HPQ) are two of the closest peers for IBM. Accenture carries a premium, with trailing and forward P/Es of 21 and 16 respectively. This seems like fairly high pricing, given that in the company’s most recent quarterly report (for the fiscal quarter ending in November 2012) earnings growth was only 9% compared to the same period in the previous fiscal year and revenue barely increased at all. As a result we would avoid the stock. Hewlett-Packard, because of its significant hardware business, has not been doing well in terms of profitability. Both its top and bottom lines showed a decrease in its last quarter (which ended in January) versus a year earlier. However, the stock is cheap enough at a forward P/E of 7 that it may be worth looking into the out of favor company to see if it can in fact be “less bad than expected” over the next couple years.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!