5 Reasons To Buy IBM
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in…
- 3 Reasons To Avoid American Airlines Stock
- The Most Dangerous Stock In The World
- 4 Reasons To Avoid Kodak
- 4 Reasons To Avoid Norwegian Cruise Lines Stock
- 3 Reason To Avoid Ford
- 3 Reasons To Avoid Volkswagen
- 1 Reason To Avoid Tesla
- 2 Reasons To Avoid Netflix
- 3 Reasons To Avoid Boeing
Today, I want to show you 5 Reasons To Buy IBM To Depression Proof Your Portfolio.
IBM (IBM) is a leading provider of IT solutions worldwide.
Some of its segments are
- IT Infrastructure Services
- IT Services
In other words, IBM makes products and services that help run the internet.
The company is based in Armonk New York. It has a $111.6 billion market cap. And it also pays a 5.2% dividend.
This is reason #1 to buy IBM to Depression Proof Your Portfolio.
IBM’s 5.2% Dividend
Over the last decade IBM’s paid out a total of $45.69 per share in dividends.
At today’s share count of 894 million shares that’s equal to $40.9 billion paid out to shareholders in the last decade.
Plus, in the last decade it grew its dividend 160% from $2.50 per share in 2010 to $6.49 per share now. This is an annual dividend growth rate on average of 16% per year.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
Both help you earn higher returns over time and will especially help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns huge profits and cash flows. Which is reason #2 to buy IBM to Depression Proof Your Portfolio.
IBM Earns High Profits
Over the last decade it earned an average operating income margin of 17.9% per year.
I look for anything above 10% on a consistent basis so IBM surpasses this number.
Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operation profit margins above 10% over long periods of time.
This makes IBM a great operating business.
But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 14.8% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.
IBM surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.
These profits also allow it to continually reinvest in operations. And to pay you a large dividend as well.
Its large profits and cash flow and growing dividend payments over time make IBM a safe income play in whatever is to come in the next few months or years.
But these profits also allow another layer of safety because IBM’s business should be largely protected from negative affects of the coronavirus… Which is reason #3.
The Coronavirus Won’t Harm IBM
People may stop paying their mortgages.
They may stop paying their credit cards.
They may stop paying their vehicle loans.
And they may stop paying their student loans.
Because of the mass unemployment caused economic issues we’re now dealing with people may stop paying these things if they need to.
But businesses and individuals won’t stop using or needing the internet.
This was illustrated when IBM released its most recent quarterly report on July 20th, 2020.
Revenue only fell 5.4% from the 2019 2nd quarter to the 2nd quarter of 2020.
Revenues in its cloud computing unit – where a big part of its future hopes lie – rose 30% to $6.3 billion in the 2nd quarter 2020.
Revenue for the last 12 months in the cloud segment rose 20% to $23.5 billion.
And earnings per share fell 31%.
The revenue numbers are fantastic but the earnings per share not so much.
Earnings fell due to IBM’s continued restructuring of its businesses to better align with the future of the internet.
This is a problem and has been for a while with IBM but its not a deal killer… Especially because its cloud computing segment is picking up speed after IBM’s $34 billion acquisition of Red Hat in 2018.
The revenue rising during the worst health crisis we’ve seen in our lifetimes is fantastic. And the earnings while down are not horrific like many companies are dealing with right now.
While many other companies’ revenues, profits, and cash flows are getting crushed by the coronavirus… IBM still performed solidly.
This shows the power of the company and its ability to survive and thrive during this pandemic… No matter how long it lasts.
This gives enormous stability to the company in these highly uncertain times. And it also means you should expect IBM to continue earning enormous profits and cash flows.
And this means you should expect the large dividend payments to continue as well.
But what about its valuation? Is it cheap?
IBM Is Cheap
This is reason#4…
With the markets at or near all-time highs you’d expect a fantastic stock like IBM to be selling at an enormous valuation.
But it’s not.
As of this writing its P/E is 14.3.
Its P/CF is 7.4.
And its forward P/E is 11.3.
On all three metrics I look to buy investments below 20 to consider them undervalued.
And IBM’s current valuations fall well below this number putting it into the cheap valuation category.
This means IBM stock offers you a margin of safety in investing terminology.
A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.
There is one concern to watch out for though if you do decide to buy IBM… Its debt levels…
IBM’s Debt Levels Are Above What I Normally Look For
Because of the previously mentioned Red Hat acquisition along with the restructuring of its business over the last several years IBM does have a decent amount of debt.
As of this writing its debt to equity ratio is 2.89.
I look to buy companies that have a debt to equity below 1.
Because the lower debt levels the company has means the lower chance it has of going bankrupt. And this makes it a safer investment.
Generally, the more profits and cash flow the company produces the higher its debt levels can be without becoming problematic.
The key words being can be above.
Because of IBM’s continued fantastic profits and cash flow these debt levels above 1 aren’t a massive concern right now.
Plus, its also worked to pay off debt in the last several years as well and plans to continue doing so going forward.
It should be able to do this due to its huge operating profits and cash flows mentioned above.
These profits are another reason its debt levels don’t keep me from recommending you buy IBM To Depression Proof Your Portfolio.
If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in IBM.
Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.
- 3 Stocks That Will Earn You High Returns In The Coming Depression.
- One Thing To Do Today To Protect Your Investments
- 5 Reasons To Buy British American Tobacco
- 3 Stocks To Depression Proof Your Portfolio – Stock #1
- 3 Stocks To Depression Proof Your Portfolio – Stock #2
- 3 Stocks To Depression Proof Your Portfolio – Stock #3
- 4 Reasons To Buy Cummins To Depression Proof Your Portfolio
- 5 Reasons To Buy JM Smucker
- 5 Reasons To Buy General Mills
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.