A quarter-century ago, back in the dot-com era, IBM (NYSE:IBM) would have been a “Magnificent Seven” member if that term had existed. Nowadays, however, some investors ignore IBM as a legacy technology business. In contrast, we consider IBM stock to be a prime choice for momentum and yield, and we’re assigning it an “A” grade.
IBM is an underappreciated innovator in a number of niche technology areas. We encourage you to discover – or maybe re-discover – IBM as an investable business in the 2020s.
IBM: Financially Strong and Still a Tech Leader
From a financial standpoint, IBM is growing in all the right ways. In 2023’s fourth quarter, IBM grew its revenue 2% year over year to $61.9 billion. Plus, the company increased its GAAP gross profit margin by 1.4 points to 55.4%. IBM improved its free cash flow by $1.9 billion to $11.2 billion.
Moving beyond the company’s financials for a moment, IBM is also highly active in multiple technology fields. Here’s a sample of what IBM has done recently:
- Introduced LinuxONE 4 Express, a robust, cybersecurity-enhanced hybrid-cloud and artificial intelligence (AI) platform
- Launched an entry-level cybersecurity certificate with nonprofit cybersecurity-professional organization ISC2
- Teamed up with Korea Quantum Computing to develop quantum-computing technology
- Opened a cyber-response training facility in Washington, D.C.
Along with all of that, IBM committed to invest “up to $45 million in cash and in-kind donations of technology and services” toward sustainability initiatives over the next five years. Even if IBM is a “legacy” business, it’s still as modern as ever.
Choose IBM Stock for Momentum and Yield
Now you have many reasons to like IBM as a business, but what about IBM stock? Is it a loser or a winner this year?
IBM shares have actually provided some magnificent returns recently, even if IBM isn’t called a “Magnificent Seven” company. In several months, the stock has rallied from the low $160s to nearly $200.
That’s not too shabby for a stock that some critics might pigeonhole as just a defensive investment for retirees. There’s nothing wrong with being a retiree, and whether or not you’re retired, you can still collect decent dividends from IBM.
Generously, IBM offers a forward annual dividend yield of 3.38%. This easily beats the technology-sector average dividend yield of just 1.025%. Go ahead and research the dividend yields of the “Magnificent Seven” companies, and you’ll have a hard time finding one that surpasses what IBM has to offer.
IBM Stock: Much More Than Just a Defensive Play
IBM was a superstar in a former era, but what about 2024? Should you consider investing in IBM only as a defensive/dividend play?
It’s fine to appreciate IBM as a relatively safe, yield-bearing business to invest in. However, IBM is a financially firm business that’s on the vanguard of multiple technology-niche fields. For all the reasons we’ve cited today, IBM stock is a strong pick this year, and it earns an “A” grade.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place
