IBM stock surpasses technology sector in 2022

IBM is not often described as an attractive company. But in a year that saw investors ditch all big tech stocks, Big Blue was in the green.

Nasdaq is closing worst year since 2008. High gas prices, soaring inflation, and the Federal Reserve’s steady rate of interest rate hikes have punished growth stocks and favored more mature, less volatile names, considered to be more resistant to recession.

Tech names that thrive in this era Covid hit hardest as the economy reopens and consumers return to many of their old habits.

Among U.S. technology companies valued at $50 billion or more, IBM is one of only two to generate positive profits in 2022. As of the end of Friday, the stock was up. 6% during the year. The other riser is VMwareup 5% because it agreed to buy back in May by Broadcom for $61 billion.

When meta, Amazon and Tesla was pent-up, investors turned to 111-year-old IBM, betting on its steady earnings, alongside energy stocks like ExxonMobilhealth care names include Merck and industry Northrop Grumman and Lockheed Martin.

IBM is “trading well above its historical range,” Bernstein Research analysts wrote in a December 20 note to clients. The company has a holding rating on the stock.

No one will mistake IBM for a growth stock. The expansion has always been single digit and last year the company split up Kyndryl, its managed infrastructure services business, into a separate publicly traded entity. That cut-off per capita figure is about 90,000.

But IBM generated $752 million in free cash in its latest quarter, up 25% from a year earlier, and paid $1.5 billion in dividends. Third quarter earnings and revenue both topped estimates, and the company raised its forecast for the full year.

Atlanta-based investment advisor Crawford, which focuses on earnings and dividends, looked at IBM in 2016 and concluded it was too early to make a big investment, said foreman Aarona stock analyst at the company.

Crawford’s thesis changed in 2019, after IBM buy Red Hat grow faster for $34 billion. The company, which today has $6.7 billion under management, increased its stake in IBM from $2 million to $30 million and continued to buy until its holdings reached $109 million.

IBM takes one hybrid method to the cloud under CEO Arvind Krishna, who succeeds Ginni Rometty at the helm in 2020. After struggling to scale as a cloud infrastructure provider, The company bets that businesses will use on-premises data center infrastructure as well as the public cloud, rather than relying entirely on one approach or the other.

“Three years later, it’s much closer to their vision than anything in the public cloud,” says Forestman. His company sold a 3% stake in the second and third quarters of this year.

Consulting remains an important part of IBM’s business, accounting for a third of revenue. In that area, IBM partnered with the major cloud providers, rather than competing harshly with them. The company has a business backlog with Microsoft worth more than $1 billion and even bigger with Amazon, Krishna said in a conversation with RBC CEO Dave McKay in November.

IBM also made technological advances in 2022, introducing z16 big computer. When a new mainframe comes out, many customers will upgrade. That leads to greater hardware revenue and highly profitable transaction processing software to run on the machine. IBM’s previous mainframe boom cycle began in September 2019.

While IBM hasn’t made any expensive acquisitions this year, it has announced several smaller deals to enhance certain capabilities. Earlier this month, IBM agreed to buy Octo, a Virginia-based consulting firm that targets government agencies. Terms are not disclosed. It also attracts consulting firms dial and Sentaca This year.

Foresman describes the purchases as a sensible use of capital and “so small that they don’t necessarily reveal transaction multiples.”

However, Krishna realized that the economic context was not ideal. He said in October that higher prices had led to “some caution creeping into the discussion” in Europe, where the company must prepare for a recession. In the Americas, where IBM accounts for about 53% of revenue, the business environment is “very strong,” he said.

Bernstein analysts said the stock’s direction from here could simply be based on the state of the economy, rather than any major catalysts inside the company.

“Given its defensive character and historic performance, we believe IBM is likely to outperform if we continue to put pressure on the market and potentially lag behind the major indexes if we continue to put pressure on the market,” they wrote. We entered a period of recovery.”

by IBM model through 2024 calls for single-digit revenue growth, translating into high-single-digit free cash flow growth.

That’s good enough for investors looking for safety when staking their equity.

“Combined with average single-digit revenue growth, a few points better than EPS, and a 5% dividend yield that’s — you know, that’s not a success, but it’s in the our expectations of what we’re trying to accomplish,” said Forestsman.

CLOCK: IBM CEO Arvind Krishna says technology is a deflationary answer to today’s macro struggles