Here’s What Blockchain Technology Means for IBM Stock

Making bets on emerging technologies could renew IBM stock growth

IBM stock is an underappreciated buy

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IBM (NYSE:IBM) has been in a prolonged restructuring, and the results have been mixed at best. This is particularly aggravating since various other old-line tech giants like Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO) and Adobe (NASDAQ:ADBE), have staged strong turnarounds. But I think investors should not give up on IBM stock.

The fact is that the company is making progress. More important, it has been investing heavily in next-generation technologies.

Just look at the blockchain category.  The roots of this technology go back to 2009, with the creation of the bitcoin cryptocurrency. The blockchain technology was the foundation of it, acting as a powerful ledger system.

This meant that the transactions were stored in a decentralized database and only accessible by private key cryptography – making it highly secure.

Since then, the interest in blockchain has certainly gotten more and more intense. But the applications are much wider than just cryptocurrency. Blockchain really represents a new way of storing any kind of critical information.

And this is ideal for a company like IBM. In fact, the company has already made significant strides.

IBM Stock and the Blockchain

An example of this is TradeLens, which involves an alliance with Maersk, a major integrated container logistics company. The platform leverages blockchain technology to track transactions across the shipping supply chain. So far, there are 94 organizations in the program that account for 234 marine gateways worldwide.

TradeLens provides transparency, which is often lacking in global trade. But there is also the use of sophisticated IoT (Internet-of-Things) sensor data to provide real-time access.

To get a sense of the power of this platform, it has helped reduce the transit times of shipments of packing materials to the U.S. by as much as 40%. Keep in mind that global shipping represents about four trillion dollars in goods every year.

But TradeLens is not the only initiative. For example, there is LedgerConnect, which helps financial institutions to create their own blockchain apps. Some of the partners include Barclays (NYSE:BCS) and Citigroup (NYSE:C).

Some of the core functions of LedgerConnect include collateral management, sanctions screening and derivatives processing.

Although, the technology should also help promote standards in the financial industry and also make it easier to develop new innovations. And as the system gets more traction, there is likely to be the benefit of network effects, which should lead to strong barriers to entry.

The Bottom Line on IBM Stock

When it comes to IBM stock, blockchain technology is still in the early stages, but it should have a pervasive impact in the coming years. What’s more, IBM’s efforts show that the company is focused on innovation and taking risks.

In the meantime, IBM is making progress in transforming its business. Consider that about half of IBM’s revenues come from Strategic Imperatives, which include cloud systems, Artificial Intelligence and other next-generation technologies.

This has come from a combination of M&A, internal development and retooling of existing systems. IBM also has the benefit of a sophisticated global platform that includes 58 cloud centers across 19 countries.

And finally, IBM stock is fetching an attractive valuation. Note that the forward price-to-earnings ratio is only 10X. By comparison, Oracle (NYSE:ORCL) is at 13X and Intel (NASDAQ:INTC) is at 11X.  Oh, and IBM sports a dividend yield of 4.3%, which is one of the highest in the tech industry.

So even though the company has its challenges, it does seem like much of the bad news is already factored in. In other words, if IBM’s investments gain traction, which seems reasonable, then there could be upside here.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow 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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