November 17, 2013 in Business

Motley Fool: IBM’s long-term planning may bode well for investors

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IBM (NYSE: IBM) recently reported its third-quarter earnings, which featured cloud-computing revenue up 70 percent and its Smarter Planet infrastructure project seeing a 20 percent increase. That may seem great, but these promising divisions are still small.

The company’s core divisions, from software to services to hardware, all posted drops. Server systems sales, for example, plunged 17 percent. Overall, revenue slipped 4 percent, to a still-massive $23.7 billion, with income sliding 6 percent. Its services order backlog rose 2 percent to $141 billion.

What’s going on? Well, as it always does, the technology ground is shifting. Under new management (CEO Ginni Rometty), IBM is changing its business model and adapting. It’s investing in Big Data companies and technology, for example, which seems smart when you consider that the amount of data we store every year is growing by a mind-boggling 60 percent annually.

Weakness in global economies and even at home, where many companies are holding off on IT spending, has hampered IBM, but that’s not a permanent problem. For patient believers, IBM stock recently offered a 2.1 percent dividend yield, and the company has been buying back stock aggressively – enough to boost earnings per share by 11 percent.

Competition has been heating up, but IBM is making long-term investments, and with a recent price-to-earnings ratio near 12, its shares look appealing. (Motley Fool newsletters have recommended options on IBM.)

Ask the Fool

Q: How can I sell my stock certificates? – S.A., Fayetteville, N.C.

A: Hand-deliver or mail them (signed) to your brokerage, which can then sell them for you. If you don’t have a brokerage, you can open an account with one.

My Dumbest Investment

My dumbest investment has been using traditional brokers and money managers. I go it alone now and have beaten the S&P 500 for two years in a row – and I don’t do puts, calls, margins, ETFs, commodities or Big Oil. – J.B., Reston, Va.

The Fool responds: Brokers and money managers will not always serve you well. Some suffer from conflicts of interest, such as when they’re rewarded for having you invest often or in certain securities. Money managers sometimes focus on delivering great short-term results instead of aiming for maximum long-term growth.

You’re right that you can do very well without using any complicated or risky strategies, such as put and call options (which often expire worthless), or margin (where you invest with borrowed money) or commodities (which can be highly leveraged and can cost you much of your money if they go the wrong way).

Exchange-traded funds (ETFs), though, can be effective – especially ones with low fees, based on broad market indexes. Investing in oil companies has paid off for many, but those opposed to the industry can certainly do well without it.


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