Big Blue – I’m Adding You
Big Blue – I’m Adding You
A little late to post but last week I made another purchase in our rrsp account. This is a stock I already held a small position in and wanted to grow but felt there needed to be some changes first. Well there were some nice changes recently.
The stock is IBM.
This one clearly has its fans and haters, but I think after their recent quarter things are turning around and the risk/reward ratio is worth it.
International Business Machines Corporation (IBM) is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing. The Cognitive Solutions segment delivers a spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, a cognitive computing platform that has the ability to interact in natural language, process big data, and learn from interactions with people and computers. The GBS segment provides clients with consulting, application management services and global process services. The Technology Services & Cloud Platforms segment provides information technology infrastructure services. The Systems segment provides clients with infrastructure technologies. The Global Financing segment includes client financing, commercial financing, and remanufacturing and remarketing.
(Source – RBC Online Banking)
Big Blue is a massive company but has under performed its peers for a long time. I think the old ceo was a big part of this reason. Although I’ll give her credit for the red hat acquisition. Do I think she paid a steep premium for sure I do, but this may be exactly what IBM needed – a solid growth vector.
In the past big blue has been throwing money left right and centre at share buybacks, which lead to lack of growth in the company. Now they are using that money for growth which the market will enjoy in the coming quarters I think.
While the recent acquisition created a tonne of debt, they paid off 10 billion in debt since the red hat acquisition already. That is pretty impressive and something I loved to see.
This quarter they posted a very miniscule revenue growth of .1%, but some growth rate non the less. Hey they have been posting negative growth rates the last 5 quarters. Red hat was a big factor for this. Total cloud revenue was up 21 % year over year.
I think this will continue moving forward but obviously your competing against some of the other top guns of tech and they have more cash on hand to work with. But those stocks aren’t trading for nearly as cheap as IBM is at the moment.
Currently IBM is trading at roughly 10.95 times its 2020 earnings estimates and offers a 4.17% dividend yield at today’s price. Huge for a tech company. IBM has also raised their dividend for 24 years and most likely will again in April, making them a dividend aristocrat. This should be very positive for them, as we all love to buy aristocrats and kings. I think their next raise will be in the 3-5% range as they focus on paying off that debt, which I fully support.
We previously has 18 shares but decided after the new ceo news and recent quarter to increase that position to 28. We bought 10 shares at $147.02 per share last week. This added 68.40 usd to our forward income. Our Dividend Portfolio has been updated.
I have wanted to increase our sector weighting in Tech this year and with this recent news I’m happy to add to our previous position. Some would rather watch the next couple quarters before investing in Big Blue, which isn’t a bad idea. I think the risk to reward in this situation is too good to pass up. Will the new ceo be the next Satya Nadella? Haha Here’s Hoping!
If your interested in reading more about IBM Nicholas Ward wrote a nice article about them on seeking alpha, you can read that here.
Long – IBM
What do you think about ibm? and their recent results and changes?
Hey I’m Rob, creator of Passive Canadian Income.
In 2011 me and my wife had almost $60,000 in debt and a negative $7,000 Net Worth. Through hard work and financial education we paid all that off. Now we are focusing on increasing our Passive Income Streams to make the money work for us. Feel Free to Follow along the Journey by clicking the Social Media links below or subscribing to get notified of new posts on the sidebar.