Sitting on a Cash Pile 2.0? Do Not Overlook ‘Big Blue’

Sitting on a Cash Pile 2.0? Do Not Overlook ‘Big Blue’

$IBM

IBM (NYSE:IBM) will provide investors with a large income stream as it makes a move to return to growth.

International Business Machines Corp. suffered a hammering like no other Big Tech because the 109 anni company has failed to innovate, while tens of billions of dollars spent on stock buybacks did not help investors.

But the company now appears to be moving in the right direction, setting up a attractive long-term investment for those with patience.

Shares of IBM are down 7% YTD. The stock features a Quarterly dividend of $1.63/share, for a yield of 5.0%, based on the closing price of 124.16 on 18 June.

IBM confirmed its break out on 12 June and our technical indicators are flashing Very Bullish in here. There is Strong Support at 122.05 and lite resistance thru 156.82. A clear break about the 6 February high at 156.76 augurs a move to 200.0.

Note: IBM recently bought Red Hat, the unit’s area of expertise, hybrid cloud, is Key, as many companies need to integrate legacy systems and physical infrastructure for cloud functionality. And that could be an important opportunity for IBM to swing back to revenue growth.

Over the past 12 months, IBM has generated $13.55/share in free cash flow , for a free cash flow yield of 11.36%. That is super coverage of the dividend.

IBM is one of the highest-yielding components of the S&P High Yield Dividend Aristocrats Index SPHYDA, +0.01%, which includes companies that have increased their regular dividend payouts for at least 20 yr running.

There has been a cultural change at IBM, but many investors are not buying IBM’s culture change yet, if you are in it the for the long term, as well as the solid dividend then IBM is a Buy. There are only 5 other Street analysts that have Buy ratings on IBM.

NB: The Buy what Buffett Sell trade is on, Berkshire sold all of its shares.

IBM’s shares trade at a forward P/E of only 10.9X, compared with much higher valuations for the FAANGs +Microsoft, but also below the P/E valuation of 21.7X for the S&P 500 and 23.6 for the S&P 500 IT sector.

News: IBM Expands Partnership With Siemens to Launch New Solution

Here is a look the FANNGs +MSFT:

COMPANYTICKERTOTAL RETURN – 2020 THROUGH JUNE 12TOTAL RETURN – 2019FORWARD P/E RATIOFORWARD P/E RATIO – YEAR EARLIER
Facebook Inc. Class AFB, +0.17%11%57%31.921.9
Amazon.com Inc.AMZN, +0.49%38%23%112.565.0
Apple Inc.AAPL, +0.04%16%89%25.816.1
Netflix Inc.NFLX, +0.46%29%21%60.984.6
Alphabet Inc. Class CGOOG, -1.04%6%29%33.022.9
Alphabet Inc. Class AGOOGL, -1.26%5%28%33.023.0
Microsoft Corp.MSFT, +1.07%21%58%31.827.0

Have a healthy weekend, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge. Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.