In recent months, it seemed like International Business Machine (NYSE:IBM) stock had finally found its stride. The company’s shares have been on a roller coaster over the past year after closing out 2018 on a low note.
In July, IBM released a fairly positive second-quarter earnings report. The earnings report was mostly in line with what investors were expecting. Investors seemed willing to overlook the fact that the company’s revenue fell for four consecutive quarters, and IBM stock rose accordingly.
That same month, the company finalized the much-anticipated Red Hat deal. The company started off August on a strong note, but IBM’s stock price has continued to fall throughout the month.
Investors continue to react to IBM with skepticism. Though this is somewhat understandable when you consider the average investor lost money on IBM over the past five years.
It’s unclear how long this negative spiral will persist and what it will take IBM to break out of it. But the stock still shows promise and the low share price could be a good entry point for new investors. Here are three reasons why you should consider investing in IBM.
IBM Finalized the Red Hat Acquisition
When IBM first announced its plan to acquire Red Hat for $34 billion, it was met with some surprise. After all, this is the largest deal IBM has ever been a part of and was somewhat out of character for the company.
The deal finally closed on July 9, so the results will show up on the company’s earnings report for the second half of 2019. The Red Hat acquisition is a good move for IBM stock and should do a lot to help the company’s bottom line.
The company expects that its cash flow and gross margin should receive an immediate boost. Best of all, the Red Hat acquisition will expand IBM’s reach in the cloud industry. The acquisition will leave IBM with some debt but the long-term benefits should be worth it.
The Company’s Cloud Revenue Continues to Rise
IBM continues to expand its reach in the cloud industry, though it still plays second fiddle to companies like Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). The company’s cloud revenue has grown to $19 billion, accounting for roughly a quarter of IBM’s total revenue.
The company really excels in the hybrid cloud market because enterprise companies are often unable to move completely to the public cloud. IBM is able to fill in the gap by providing businesses with a combination of public clouds as well as on-site infrastructure.
History Shows IBM Stock Will Stick It Out
IBM stock isn’t the most exciting stock and it’s not the unicorn many investors are looking for. But the company has been around for more than a century and has successfully transitioned with changing marketplaces and economic conditions before.
IBM’s transition from offering legacy products to more in-demand services has been messy, but the company continues to make progress. If the Red Hat acquisition plays out the way the company is hoping, it could help revive IBM’s revenue going forward.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned stocks.
