IBM braintrust has clear vision and ability to execute company goals

One of International Business Machines’ (NYSE: IBM) key strengths is its talented leadership.

Between 2005 and 2009, despite revenues growing only 5 percent, IBM, led by longtime CEO Sam Palmisano, managed to more than double earnings per share (EPS).

How did IBM do that? By transitioning into higher-margin businesses, wringing more efficiencies out of its massive organization and using profits to buy back shares.

IBM’s leadership team has the most focused road map in all of technology. It has a plan in place to deliver 12 percent compounded growth in EPS over the next five years. With revenue growth expected to be modest, IBM plans to flex its balance sheet. It’ll plow profits into buying back shares and will push further into high-margin areas such as data analysis, where it has a strong presence.

It’s an ambitious goal, but given IBM’s track record and the superior planning and focus compared to its rivals, it’s not crazy. Several of IBM’s peers could learn some lessons from it.

While IBM has kept its research and development spending stable since 2005, it has managed to focus on many of the key growth areas in IT spending, and its absolute spending level still outpaces most companies’.

Assessing management’s ability to deliver on its goals should help us determine whether or not the stock’s a winner in the coming years. (The Fool owns shares of IBM.)

Ask the Fool

Q: When I see a well-known company in bankruptcy and its stock is trading for peanuts, I wonder whether it might emerge as a money-making company again. Might those companies be good investments? – R.S., Elyria, Ohio

A: Usually they’re not. When companies restructure themselves while in bankruptcy protection, holders of common stock tend to end up with nothing, while creditors and others might get some pennies on the dollar. When companies emerge from bankruptcy, they often do so with new stock, leaving the old shares worthless. It’s better to wait until they emerge and then consider whether the new stock is promising.

Q: Do military personnel get any special tax breaks? – D.T., Fort Myers, Fla.

A: Yes. Check out IRS Publication 3, “Armed Forces’ Tax Guide.” Some provisions include the exclusion from gross income of combat pay and some other allowances and payments, the ability to use combat pay as earned income for the Earned Income Tax Credit, the deductibility of certain travel expenses for reservists, the deductibility of certain moving expenses for active-duty personnel moving to a new permanent station, the ability of families of fallen soldiers to take advantage of tax-favored accounts, and tax forgiveness for those who die in active service in a combat zone or from an injury received in a combat zone.

Those serving in a combat zone and certain others can also have their tax deadlines automatically extended.

The Soldiers’ and Sailors’ Civil Relief Act of 1940 offers more protections, such as in some cases from eviction, the delay of civil court actions, and reduced interest rates (6 percent maximum) on mortgage loans and credit card debt.

Learn more at www.defense.gov, www.irs.gov, http://www.defense.gov/specials/ relief_act_revision, and www.Fool.com/taxes.

My dumbest investment

After researching InterDigital in early 1999, I bought in near $4.50 per share. Nothing happened for many months, but between October and December, it shot up to $75. I held on. I realize now that this much of a gain in such a short time was a fluke and may have been caused by some manipulation. It soon dropped sharply. I should have cashed out at $75. The lesson here is to not be determined to hold on for the long haul with penny stocks. – C.H., via e-mail

The Fool responds: You do have to be careful with penny stocks (those trading under $5), as they’re often volatile and can be manipulated. (It can be best to just avoid them entirely.) Though many pennies are not around for long, InterDigital has grown into a nearly $2 billion company and has been trading north of $40 per share.

Your research back in 1999 may have suggested that the company was worth far more than $4.50 per share, but it probably didn’t suggest a $75 value. Once a stock surpasses what you think it’s really worth, consider selling.