Should You Buy International Business Machines Corp. (IBM) Stock in 2017?

Short answer, no, since IBM is dying -- buy it only for dividends

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The year 2016 was a bad one for International Business Machines Corp. (NYSE:IBM) bears like me.

The stock is up 21% in the past year. Revenues should approach if not exceed 2015’s $81 billion. That’s great considering 2014 had $91 billion in revenue.

IBM is still bringing more than 10% of its revenue to the net income line, and can easily afford its $1.40 per share quarterly dividend from earnings. Even with its 2016 gains IBM remains a yield stock, meaning you should get back 3.3% of its cost back next year from dividends.

So why do analysts consider it a weak hold? Why do three still have it on their sell lists? For that matter, why do I think tech investors should avoid this stock like it has a disease on it?

It’s nothing personal but IBM, which turned 100 in 2015, is no longer a tech leader.

What IBM Lacks

Today’s IBM is mostly a custom software company, more like Cognizant Technology Solutions Corp (NASDAQ:CTSH) than anything else. (I wish I could compare it with Accenture Plc (NYSE:ACN), which is a buy.)

IBM “sold” its chip-making arm to Global Foundries in 2014. I put sold in quotes because IBM paid Global $1.5 billion to take it, like an aging center an NBA team moves to clear cap space.

IBM no longer makes PCs or servers. It sold those units to China’s Lenovo. IBM still makes acquisitions. It made a dozen just in 2016. But most are additions to things the company should be doing better at itself, like digital marketing or cloud maintenance. Others are enhancements to rivals’ software platforms, like those of Salesforce.com, Inc. (NYSE:CRM) and Microsoft Corporation (NASDAQ:MSFT).

By rights IBM should be the cloud leader. That’s the heritage of its mainframe monopoly, and its dominance of the PC market in the 1980s. But even after buying SoftLayer in 2013 IBM’s share of the cloud market is stuck in single digits. Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) should pass it this year.

The best-known product in the IBM stable today is Watson, a cloud front-end named for its legendary founder. But the company still won’t reveal how much revenue Watson brings in. You think they would do that if Watson were growing like gangbusters?

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Article printed from InvestorPlace Media, http://investorplace.com/2017/01/international-business-machines-corp-ibm-stock-buy/.

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