IBM Finds Fans in a Market Where Boring Is Rewarded
It's been decades since investors looked on IBM as an exciting tech stock, but with high-growth shares plunging this year, that lack of flashiness has become one of its most-desired qualities.
International Business Machines Corp.'s low valuation, high dividend yield, and cash flow have helped the stock outperform the broader technology sector in an environment marked by high inflation, which has led to rising interest rates and concern a recession is looming. Those attributes could be on display Wednesday as IBM, which offers infrastructure, cloud, and IT services, reports third-quarter results.
Shares of IBM rose 1.6% on Tuesday.
The stock has a price-earnings multiple of 12.6, compared with 19 for an index of tech stocks in the S&P 500. Apple Inc. and Microsoft Corp. trade for about 22 times earnings. IBM also has an indicated dividend yield of 5.4%. Among components of the S&P 500 tech index, that's second only to Intel Corp., the chipmaker mired in a difficult environment for semiconductor stocks.
“I'm of the mind that I'm going to own tech stocks if their valuations are reasonable and I can touch the cash flow, which takes me to lower PE tech like IBM,” said Bob Doll, chief investment officer at Crossmark Global Investments. “I'd rather own these companies than those that got bloated and had a crazy valuation.”
IBM has dropped 4.2% this year including reinvested dividends, versus a 28% drop for the S&P 500 tech index. According to data compiled by Bloomberg, value, profitability, and dividends have been among the best performing factors for tech stocks this year, with volatility and growth the weakest.
The backdrop represents a switch from the years where rapid growth was the favored metric for tech
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