Wise investors should give IBM long-term look

Few companies have a bigger name in computing than IBM (NYSE: IBM). But facing a rapidly changing technology environment that has moved much software from PCs and laptops to the cloud, IBM has been scrambling to develop competitive cloud platforms. The higher costs associated with this development, coupled with falling sales in its traditional software business, caused the company to post a 4 percent year-over-year decrease in revenue recently, while lowering expectations.

IBM isn’t perfect. But it has also been in this situation before in the mid-1990s, and it came out stronger following a complete restructuring of its strategies. Who’s to say that won’t happen again?

IBM has shed its semiconductor business and has kissed some lower-margin hardware operations goodbye. While its massive size may be a big disadvantage in the near term (restructuring a $160 billion company takes a long time), that size, and the free cash flow that comes with it (around $13 billion annually), should help IBM generate above-average returns on its cloud investments by the end of the decade.

Meanwhile, patient believers can collect IBM’s dividend, which has doubled over the past five years and recently yielded 2.9 percent. IBM’s turnaround won’t happen overnight, but it has proved time and again that it has the tools and talent to succeed over the long term. (The Motley Fool owns shares of IBM.)

Ask the Fool

Q: I see that Russia’s economy is in trouble. What, exactly, is going on there? – H.S., Peterborough, New Hampshire

A: Well, things have been happening fast and may have changed further by the time you read this, but much of the major oil exporter’s trouble can be tied to falling oil prices, which have led to less foreign money coming in and a plunging value of rubles, Russia’s currency. (Russia’s aggression against Ukraine and corresponding sanctions against Russia haven’t helped, either.)

In mid-December, Russia tried to combat this and raised the interest rate at its central bank (which is like our Federal Reserve) by a lot – from 10.5 percent to a whopping 17 percent. That move was designed to stop many from abandoning the ruble and to make saving in Russia and buying Russian bonds more appealing. If it doesn’t work, though, Russians may be left with sky-high interest rates that will make borrowing hard.

Meanwhile, companies such as Apple suspended some business in the country, as a volatile currency there makes pricing their offerings difficult and makes it hard to know what to expect when converting rubles into other currencies. Russia isn’t necessarily economically doomed, but it’s going through a tough stretch.

Q: How can I find the best CD interest rates? – N.W., Broken Arrow, Oklahoma

A: Visit bankrate.com. Recently, it listed the national average rate for a one-year CD as 0.27 percent, while it was 0.86 percent for a five-year one. It also listed some available rates of 1.15 percent or more for one-year CDs and some 2.25 percent ones for five-year CDs. You’re not limited to local offerings and can invest through, say, a Wyoming bank if it offers a great rate.

My dumbest investment

I was working in England years ago, when I thought I’d dabble in the stock market a little. I invested in a software company and set an order to sell my shares automatically if they ever reached a certain price.

At one point, I headed home to Houston for the weekend, and after arriving I learned that the whole software sector had tanked while I traveled. I had protected myself from the stock reaching an unsustainable price, but not against a big drop. I only lost about $1,250, but that was half my money back then. It took me almost 10 years to get back to trying my hand at trading again. – B.B., Spring Branch, Texas

The Fool responds: While some do like to set stop-loss orders to protect against price drops, others avoid them because stocks sometimes just plunge and then recover and go on to reach new highs.

Be careful about thinking of investing your hard-earned money as “dabbling,” though, or of “trying your hand” at “trading.” That smacks of speculation, when you should instead aim to be a steady, long-term investor.