International Business Machines Corp. (IBM) Stock: Don’t Abandon the Long Game!

International Business Machines Corp. (NYSE:IBM) pulled off top- and bottom-line beats for its third quarter. But the company’s 18th consecutive decline in revenues wasn’t enough, and Wall Street was selling off IBM stock by about 3% in Monday’s after-hours trade.

International Business Machines Corp. (IBM) Stock Dips on 18th Straight Quarterly Sales Decline

IBM’s Q3 earnings came to $3.29 per share to beat expectations of $3.23 per share. Meanwhile, revenues of $19.29 billion also topped estimates for $19 billion … a slight dip to keep up the company’s dubious streak.

Some highlights from the IBM earnings report:

  • The cloud business revenues surged by 44%, with the total for the past 12 months coming to $12.7 billion
  • IBM created cloud partnerships with Workday Inc (NYSE:WDAY), VMWare and AT&T Inc. (NYSE:T)
  • The company continued to invest in its mobile apps partnership with Apple Inc. (NASDAQ:AAPL). The business is now worth over $1 billion.

Investors already had been growing lukewarm on IBM stock. Shares had lost about 5% or so since early August, and largely had been struggling over the past couple of years while the company worked on a major transition toward categories such as analytics and cloud computing.

UPDATE: IBM, however, has a long history of navigating challenges.

How IBM Stock Can Come Back

IBM has a tremendous global brand, a massive customer base, a wide-array of mission critical technologies and an extensive infrastructure.

However, the key for getting IBM stock back on track is to refocus these assets on growth areas — a herculean task. But the company seems to be making progress. The Strategic Imperatives part of the business (which includes cloud computing, Watson/analytics, security, social and mobile) increased by 16% to $8 billion on a year-over-basis. For the past 12 months, the total was an impressive $31.8 billion, representing about 40% of IBM’s total business. A couple years ago, the company set forth the goal of reaching this level by 2018.

But the earnings report also has some other key details that should be bullish for IBM stock.  For example, the company has launched Watson Genomics from Quest Diagnostics Inc (NYSE:DGX), which will leverage artificial intelligence (AI) to help physicians fight cancer.  The partnership also includes the renowned Memorial Sloan Kettering Cancer Center.

The University of Tokyo also announced that Watson helped with a medical breakthrough for the diagnosis and treatment of a rare form of leukemia. This was actually the world’s first example of AI being used in such a way.

But as I’ve noted before on, an investment in IBM stock is really a long-term play. Much work still needs to be done, and the competitive environment remains fierce.

For now, IBM has a reasonable valuation of 13X — versus a similar valuation for Intel Corporation (NASDAQ:INTC) and Microsoft Corporation (NASDAQ:MSFT). The attractive 3.6% dividend yield on IBM stock should provide some cushion on the downside, too.

Tom Taulli runs the InvestorPlace blog IPO Playbook and also, 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.

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