Blue-Chip Stocks to Avoid #5: International Business Machines (IBM)
IBM (IBM) has been performing well of late — having gained nearly 7% since January — but it has gone nowhere since late 2011. Warren Buffett has given IBM a boost with his mild support, but check out his commentary on the stock from a CNBC interview on March 3:
“The revenue trends have been less than anticipated – although not dramatically less than anticipated. The financial performance has been pretty good but it’s been helped by low tax rates and things of those sort. There is a transition going on in the business, particularly in terms of the cloud. It’s fair to say that I know less about the future of IBM than I might know about the future of Wells Fargo or Coca-Cola or the [other] businesses we own. I think I do know enough it to still feel good about owning the stock.”
If this is the best Buffett can muster on a stock he feels good about, his commentary on the names he’s avoiding must be brutal.
The key point in Buffett’s quote regards IBM’s revenues. The company is expected to chalk up the following revenue numbers (in billions) during the three-year stretch from 2013 to 2015: $99.75, $99.30, $100.66. Earnings continue to rise, and investors can bet that CEO Virginia M. Rometty is going to make good on her promise to deliver $20 in EPS in 2015 — one way or the other. Still, the stock’s tepid performance of the past two-plus years shows that investors are growing impatient with relying on financial engineering with a company that seems to be in a perpetual state of transition.
Add it up, and there’s no reason to own IBM stock here — even at 9.4 times earnings.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.