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IBM Will Soon Become a Tech Leader

I hate to say it, but legacy tech giant IBM (NYSE:IBM) hasn’t been a hot topic of discussion in the past decade. Yet, while IBM stock might not generate the buzz that it once did, that doesn’t make it an unworthy investment.

The IBM 5160 is a version of the IBM PC with a built-in hard drive. Released on March 8, 1983. The 5100 series are knowns as one of the first home computers.

Source: Twin Design /

If anything, a bona fide contrarian should seek out underappreciated assets. And while many technology stocks have roared ahead in the past six months, IBM stock’s been all but ignored.

Perhaps some traders view IBM as a tech dinosaur. Some folks might not even be old enough to remember a time when IBM was a juggernaut among tech names.

The billion-dollar question, then, is whether an old dog like IBM can learn some new tricks. After all, the ability to adapt to changing trends is critically important amid a rapidly changing tech landscape.

A Closer Look at IBM Stock

Technology stocks are notorious for sometimes having sky-high price-earnings ratios. Yet IBM stock’s trailing 12-month price-earnings ratio is a quite reasonable 13.8 times. This suggests that investors can own the shares without overpaying for them.

Not only that, but IBM stock features a generous forward annual dividend yield of 5.4%. Many tech stocks don’t offer any dividend payments at all, so IBM’s yield ought to entice income-focused investors.

Concerning the price action of the shares, the stock’s performance since March hasn’t been too impressive. The share price dipped below $100 and then bounced back to $120 by mid-April.

IBM stock has moved sideways since that time. But at least its shareholders have been able to collect those nice dividend payments along the way.

Pivoting to the Cloud

The cloud is a hot niche in 2020, and thankfully the executives at IBM have had enough sense to move into cloud technology. Otherwise, IBM probably would have been left in the dust as a tech company.

During the company’s second-quarter earnings call, CEO Arvind Krishna observed that IBM’s clients are accelerating their shift to hybrid-cloud technology. In order to meet the demand, IBM made a savvy move in acquiring Red Hat last year.

It’s much easier to acquire a company with the requisite architecture and expertise rather than starting from scratch. And in providing hybrid-cloud environments,  IBM has “a tremendous advantage with Red Hat Linux, which is the market share leader,” the CEO stated.

Krishna expects the opportunity in the hybrid cloud to grow. As he sees it, “Only 20% of the workloads have moved to the cloud. The other 80% are mission-critical workloads that are far more difficult to move. There’s a massive opportunity in front of us to capture these workloads.”

De-Risking With Analytics

Another buzz-worthy tech topic nowadays is risk analytics. According to NACD, nearly 70% of public company directors “report that their boards need to strengthen their understanding of the risks and opportunities affecting company performance.”

Thus, there’s meaningful demand for analytics,  and IBM is offering solutions through its Risk Quantification Services offerings. This suite of tools can help businesses calculate the probability of a cybersecurity event occurring.

The Risk Quantification Services products can also actually calculate the projected probable financial losses that would be caused by a cybersecurity attack, based on expected data losses and other factors. Along with the comprehensive analysis, Risk Quantification Services can offer recommendations for risk-mitigation strategies.

The offering is linked to the cloud because not every business understands the ins and outs of analyzing and mitigating the risk posed by their cloud usage. IBM’s foray into this future niche market is, I believe, an essential part of the company’s upgrade to a thoroughly modern tech competitor.

The Bottom Line

IBM stock hasn’t participated in the massive tech rally of 2020. However, the company isn’t a dinosaur by any means.

With compelling value and the company’s forceful move into the hybrid cloud, IBM should join the tech tidal wave in due time.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media,

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