Company Spotlight: International Business Machines (Ticker: IBM)

by John Kernan

International Business Machines (IBM) reinvented itself before. Now it is looking to do it again. In the tech boom of the late 1990’s, IBM developed a technology services business that became the envy of all the other big tech names. Meanwhile, the company started to move away from the hardware businesses that defined it for a generation. Now, it seeks to make a new name for itself in the burgeoning field of artificial intelligence.

The impressive defeat of all human challengers on Jeopardy was remarkable for sure, but IBM’s powerhouse artificial intelligence system Watson is more than a quiz show smarty-pants (or smarty-motherboard, as the case may be). It is powering industry-specific solutions as the world’s businesses move to hosting their data on the cloud. Companies that have turned to Watson to solve problems in security, healthcare, and automation have seen productivity gains significantly beyond what human engineers could accomplish.

But the great-sounding story of Watson comes on the back of revenue numbers that came in under consensus in 14 of the last 20 quarters. Wall Street is waiting for evidence that IBM has truly turned a corner. As it does, we have stock that is yielding almost 4% and trading at attractive multiples. Technology is a fast-paced, quickly changing industry, and the timing of IBM’s turn is far from certain. But Big Blue has been investing in this change for years. Now we have a company with a strong balance sheet, good customer relations, and a history of success that has a solvable problem affecting the stock price – the value investor’s ideal.