During the past three months, Wall Street bought up some of the world’s largest tech stocks. Microsoft Corporation (NASDAQ:MSFT) is up 6%, Intel Corporation (NASDAQ:INTC) has gained 5% and Qualcomm, Inc. (NASDAQ:QCOM) has rallied a sizzling 19%.
But of course, the bull move has had its laggards — International Business Machines Corp. (NYSE:IBM). For the last quarter, IBM shares have lost 3%.
This could, however, be an opportune moment to take the less-travelled contrarian path. If you’re in it for the long haul, that is.
What to Expect From IBM’s Earnings
First of all, we’ll get a sense of the status of IBM next Monday, when the company reports its results for the third quarter (it will be for after the market closes). The Street consensus is for revenues to drop 1.5% to $19 billion and earnings to fall about 3% to $3.24 per share.
For the most part, Wall Street is setting the bar fairly low for the quarter. That’s no surprise considering that IBM has suffered declines on the top-line for a grueling 17 consecutive quarters. There have also been year-over-year drops in core earnings for eight of the past ten quarters.
In light of all this, is it any wonder that IBM stock has been mostly dead money for the past few years? But again, when it comes to investing, the focus should be on the future. And yes, IBM is certainly taking major actions to get things back on track.
One has been with cloud computing. During the past quarter, this segment reported an impressive 30% jump in revenues to $3.4 billion. IBM has made key acquisitions, such as for SoftLayer and Bluemix, and has also leveraged its global infrastructure, which includes almost 50 data centers. As a result, the company has been able to snag top customers, such Workday Inc (NYSE:WDAY).
Now IBM must fight tough competitive rivals like MSFT, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN). Yet, the market opportunity is massive and should allow for a variety of players to benefit. According to a report from Morgan Stanley (NYSE:MS), global spending on cloud computing is expected to go from $70 billion last year to $141 billion by 2019.
This market, however, isn’t Big Blue’s sole growth opportunity. IBM is a leading innovator in the field of artificial intelligence, with Watson at the heart of its efforts. Watson is an amalgam of IBM’s sophisticated hardware systems, next-gen chipsets and software. Already the company has had success with categories like healthcare, education, cybersecurity and even weather forecasting.
According to IBM’s CFO, Martin Schroeter, during the company’s most recent earnings call:
“Healthcare organizations such as the U.K.’s National Health Service, the U.S. Department of Veterans Affairs, and the American Diabetes Association were among many in the quarter that announced they are leveraging Watson to create new approaches to treatment and patient care.”
In the meantime, IBM stock does have some other attractive factors. After all, the dividend yield is at 3.6% and with the stock trading hands at 11 times future earnings, its valuation is reasonable. By comparison, MSFT sports a multiple of 17 and INTC is at 13.
Again, for investors looking at a long-term value play in tech, you can’t go wrong with IBM for now.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.