Don’t Sweat the Big Stuff

IBM (IBM) got a little pop in its stock price after it reported last quarter’s earnings. The computer behemoth had profits increase 15%, a little better than the 13% estimate, as sales fell 12%.

Investors keep focusing on IBM’s lack of revenue growth. Truth is, IBM is just having a rough patch, and long-term investors shouldn’t be concerned. They will figure out how to get more money out of the cloud, buy back shares, increase the dividend, and do other stuff in the ream of technology.

Decade after decade, IBM has had issues to deal with, and when you look at the 30 year chart the stock has gone from $30 to $180. Yes it’s 30 years, but that’s not bad for conservative investors. Plus they have made dividends.

Management just increased the dividend from $1.10 a qtr to $1.30 a qtr. So that’s $5.20 a year for a $170 stock and is a 3% yield. Better than CD rates. Now if the company can get back to growing profits we would be on to something.

One Year Chart

I think IBM turned the cover this quarter. Loos like it broke out of its base and now can make a long move higher. P/E of 11 is just OK though, would be better to pick up these shares at 9x earnings (but we missed that chance didn’t we).

Estimates still slow poor profit growth ahead. And IBM only beat by 3 cents last qtr so I don’t think these will be beaten. Also, NxtQtr’s est just fell by 21 cents, the third consecutive time it has fallen.

Fair Value

Last qtr the stock’s P/E was 10. Now it’s 11. I feel IBM is fairly valued at 12x earnings and is worth $190. It will probably get there this year. Well, maybe it will.

Sharek’s Take

If you don’t sweat the big stuff, this is a good time to invest in IBM if you are a conservative investor who appreciates a 3% yield in addition to the opportunity of 5-10% stock appreciation per year. But like any stock that 5-10% isn’t each and every year and it’s obviously not guaranteed. I feel IBM is a perfect addition to income stock portfolios.