Category Archives: Uncategorized

International Business Machienes (IBM) Undervalued

3 Replies

Drop on Earnings

IBM dropped significantly today when it reported its earnings, which were significantly less than the consensus analyst estimate. This major earnings failure comes at the same time as investors are beginning to question IBM’s sustainability and power; whether or not Big Blue really has the same ability to grow as it did before.

Business Transition

In actuality, IBM is not nearly the company it was before. The company is currently going through a huge transition from a hardware company to a software company, focusing on high growth areas such as the cloud. The company has already shed off many of their hardware businesses by selling them off, and today has even reported that they will pay GlobalFoundries $1.5 billion to take their semiconductor chip units, a part of the business that has been unprofitable for years.

Misguided Bearish thesis

The main argument against IBM is that their revenues have been falling for years now, and will likely continue into the future. That, however, is misguided, since the most fundamental reason that IBM’s revenues have been falling is because they have been going through this business transition, and need time to re-stabilize their business.

Low Valuations

At trailing and forward P/E ratios of just 10, IBM is exceptionally undervalued. This is a company that has major market share in a rapidly growing part of the tech industry: the cloud.The growth prospects and what IBM could do with their new business position are enormous, yet the market is valuing its growth potential like it’s nothing.

Shareholder Friendly

Also, IBM is a dividend aristocrat, meaning that the company has increased their dividends for more than 25 years in a row, adding up to a very nice flow of cash. The company is also a serial re-purchaser of their own stock. Spending billions of dollars in buybacks every year, the company is still speeding up their share repurchases, especially since they think shares are so undervalued now.

“Road Maps”

The company is also very good at setting goals and achieving them, never straying from the path to success. Management lays out what they call “road maps” every few years, which involve setting an EPS price target for the future years. They easily attained their last road map target a few years back, and are currently on a good track to surpass their 2014 target of $16 per share.

Warren Buffett

It’s also worth a mention that respected investor Warren Buffett also holds IBM as one of his core “Big Four” holdings. These Big Four stocks are four companies (WFC, KO, AXP, and IBM) that he has held through thick and thin, good and bad. These are companies that he expects to hold forever, and expects them to be extremely lucrative over that time period as well. He recently purchased IBM, but the other three were bought in the 1960s and 1980s, and have now netted him gains in the thousands of percentages and vastly outperformed the market. Also, IBM is a technology company, an industry that Buffett has long declared too hard to understand and changeable. The fact that IBM is one of the only tech companies in his entire portfolio shows that he has probably already done much research on the company and therefore trusts it above all others.

Conclusion

IBM is a great company that is trading at incredibly low valuations in the short-term. These valuations should stabilize to an acceptable level in the future, which should most likely also reflect some premiums because of Warren Buffett’s support of the company and it’s shareholder-friendly history. The current bearishness in the company is only an effect of revenues that have dropped in the short-term due to an inevitable company transition into the software business. This issue of revenues will come to pass when the company gets back on track with their business and finishes their transition into the software business. Investors should look to IBM for sustainability, growth, and undervaluation.

The Liebster Award (Thanks a Lot to mikemarket)

3 Replies

What is the Liebster Award?

I’ve recently been selected by mikemarket as a candidate for the Liebster Award. If you, like me, have never heard of this award before, it basically goes like this: a blogger receives a nomination for the award by another blogger that has also received a nomination for the award before. The first blogger asks the second one ten questions that he makes up, just as a fun thing to get to know them better. Anyone that receives the Liebster Award then nominates 5 other people to get the award, and makes up ten questions for those other people to answer. You can probably see how this can compound pretty quickly, just like money invested in the stock market can multiply and compound to truly extraordinary levels. (As a stock market blogger, I have to include something about stocks, right?)

My Nominees

hopeisaforletterword, A Student’s Blog, Freedom Through Passive Income, investingcaffeine, Truly Unnecessary Things

My Answers to mikemarket’s Questions

1. How do you spend the majority of your day?

Gazing into the distance and contemplating the meaning of life.

2. How would you describe your most productive day?

A day I find the meaning of life by gazing into the distance.

3. How do you choose what to blog about?

I like to write about what I know, and I prefer to think that I have a strong knowledge about the stock market.

4. How tall is a Smurf?

About yay high.

5. Where is your favorite vacation spot?

Anywhere that I have fun.

6. What you do think makes a good blogger?

Consistency in blogging, loyalty to followers, and skill at their subject.

7. Why do you blog?

I feel I am able to teach others about the stock market through blogging and can help them achieve their monetary goals through it.

8. How do you get new followers to your blog?

I write consistently (every other day), and I comment on other’s blogs if I think the topic is interesting.

9. How do you get others to comment on your blog?

I believe that is quite uncontrollable.

10. Is it soda or pop?

Soda pop.

My Questions to My Nominees

1. How Long Have You Been Investing?

2. What Is Your Best Company?

3. What is Your Worst?

4. COD, Battlefield, or Halo? (Video Games)

5. What is the definition of the word “aa”?

6. What kind of investor are you? (e.g. value, growth, momentum, chartist)

7. All in all, was your overall experience in the stock market positive or negative?

8. Do you like to concentrate your portfolio in a few select holdings or diversify them among many?

9. What is the most ridiculous thing you’ve ever heard of?

10. What is the meaning of life? (Try gazing into the distance)