Why Our AI Rates IBM “Top Buy” For September
Whether or not you “know” IBM, you know IBM: the global technology conglomerate has been the face of electronic innovation for over 100 years. Often called “Big Blue,” this company now officially makes the grade for the S&P 500 Aristocrats, as it has just raised its dividend for the 25th consecutive year (though whether or not it will join the index is yet to be seen).
These increased dividends come on the back of a rather harsh year. In fact, IBM is one of a handful of major tech names that have not excelled exponentially in the face of work-from-home practices. Once IBM crashed in March, it never fully recovered to pre-pandemic highs – it hasn’t moved substantially since June.
The fact is that IBM has been on the decline for a while. Although the $115 billion company isn’t exactly strapped for resources, it’s digging itself deeper in debt – especially with the $34 billion acquisition of Red Hat.
That being said, the company is determined to turn things around. By switching from a hardware-based model to a cloud-based industry giant, the company appears to have found its saving grace. From promoting the head of one of the cloud divisions to CEO in April to focusing on software and cognitive computer, IBM is showing that it knows which steps will take the company in the right direction.
Its prospects are further bolstered by the fact that major competitor Intel has seen a tough few after announcing that they are delaying their 7-nanometer chips until the year 2022. In an industry that focuses on bringing the future to light now, this has depressed Intel’s stock in favor of their competitors – IBM included.
With this recent good news assisting IBM in their slow but steady shift, Qai’s deep-learning AI (artificial intelligence) has analyzed the company’s financial and technical data. Now, we’re ready to provide a recommendation as to what this news means for the average investor.
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International Business Machines Corp (IBM)
IBM closed up 3.87% on Wednesday, sitting pretty in the middle of the week at $128.18 per share on volume approaching 6.6 million trades. While the company’s stock has been more or less flat for the month of August and into September, there has been some increase, as evidenced by the $4 gain over the 10-day price average of $124.54.
However, IBM is still down 1.79% for the year.
This doesn’t necessarily bode poorly for the company overall, though. For instance, the company’s EPS has grown by 43.6% over the last three years even in light of the pandemic, coming up from $6.14 to $10.57.
Furthermore, IBM’s ROE has seen significant increases as well, from 32% in 2017 to almost 50% in the last fiscal year.
But this is where the growth starts to slow down. The company’s revenue has taken a hit throughout 2020, bringing the company’s cash flow from $79.1 billion three years ago to $77.1 billion as of early September. Moreover, IBM’s operating income has decreased in the same time frame, from $11.7 billion to $10.8 billion.
And, if that weren’t enough, the company’s 12-month revenue is only expected to grow by about 0.75%, which is nothing compared to others in the industry – namely Intel and Qualcomm. Additionally, they’re currently trading with a relatively paltry forward P/E of 10.66.
So, What’s the Verdict?
While the numbers are a bit of a mixed bag on the surface, when you dive deeper into what the data actually says, you find a different perspective. While the company is somewhat oddly positioned now, it’s taken big steps in the right direction, which means that when the company’s stock is ready to move, it’s going to move quickly.
Our AI seems to think so too. This is evident in our AI’s rating of the company: all B’s in Technical, Momentum Volatility, and Quality Value, with a singular C grade in Growth. While not exactly a straight-A student, there is plenty of earning potential in their future, which makes IBM a Top Buy for the start of September.
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