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June 20, 2020, 9:49 a.m. EDT

Think it’s too late to buy big tech stocks? Here’s an overlooked comeback play with a 5% dividend

IBM will provide you with a large income stream as it makes moves to return to growth under a new CEO

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By Philip van Doorn, MarketWatch


Jon Simon/Feature Photo Service for IBM
IBM designers review specifications on the z15 mainframe system.

(This is the first in a series of stories about technology stocks that investors may be overlooking.)

International Business Machines Corp. has suffered disparagement like no other large-cap tech name because the 109-year-old company has seemingly failed to innovate, while tens of billions of dollars spent on stock buybacks didn’t help investors.

But the company appears to be moving in the right direction, setting up a potentially attractive long-term investment for those with patience, according to Victoria Greene, a portfolio manager at G Squared Private Wealth.

G Squared is based in College Station, Texas, and has about $500 million in assets under management in private accounts.

‘IBM’s artificial intelligence is leaps and bounds ahead of competitors, since they have invested heavily in it for 10 years.’

Victoria Greene, founding partner and portfolio manager, G Squared Private Wealth

In an interview, Greene discussed IBM’s new direction under Arvind Krishna, who stepped up to become CEO in April, after leading IBM’s acquisition of Red Hat in July 2019. She touted the company’s “blue chip dividend” yield of more than 5%, which is well-supported by cash flow, and pointed to “a transformative three to five years as it sheds its older legacy business and refocuses on growth.”

Before looking further at IBM /zigman2/quotes/203856914/composite IBM +0.57% , let’s consider valuations for big tech stocks.

Familiar tech giants

FAANG stocks have dominated financial news reporting for a reason: significant, consistent sales growth.

FAANG stands for Facebook Inc. , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +2.22% , Apple Inc. /zigman2/quotes/202934861/composite AAPL -3.01% , Netflix Inc. /zigman2/quotes/202353025/composite NFLX +7.03%  and Google holding company Alphabet Inc. /zigman2/quotes/202490156/lastsale GOOGL +1.92% /zigman2/quotes/205453964/composite GOOG +1.94% . FAANGs, plus Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +1.39% , have outperformed in a year of what could mildly be called uncertain:

Company Ticker Total return - 2020 through June 12 Total return - 2019 Forward P/E ratio Forward P/E ratio - year earlier
Facebook Inc. Class A   11% 57% 31.9 21.9
Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN   38% 23% 112.5 65.0
Apple Inc. /zigman2/quotes/202934861/composite AAPL   16% 89% 25.8 16.1
Netflix Inc. /zigman2/quotes/202353025/composite NFLX   29% 21% 60.9 84.6
Alphabet Inc. Class C /zigman2/quotes/205453964/composite GOOG   6% 29% 33.0 22.9
Alphabet Inc. Class A /zigman2/quotes/202490156/lastsale GOOGL   5% 28% 33.0 23.0
Microsoft Corp. /zigman2/quotes/207732364/composite MSFT   21% 58% 31.8 27.0
 Source: FactSet

Scroll the table to see all the data — especially the price-to-earnings ratios.

Cheap stock

In a partially shuttered economy, earnings estimates are suspect, but the largest of the rapidly growing tech companies have been sailing through. The group above is up by double digits, except for Alphabet. For most, forward P/E ratios (based on consensus estimates for 12 forward rolling months among analysts polled by FactSet) have increased considerably.

/zigman2/quotes/203856914/composite
US : U.S.: NYSE
$ 122.44
+0.70 +0.57%
Volume: 1.97M
Sept. 28, 2022 12:33p
P/E Ratio
19.93
Dividend Yield
5.38%
Market Cap
$110.20 billion
Rev. per Employee
$208,205
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 116.95
+2.54 +2.22%
Volume: 26.35M
Sept. 28, 2022 12:33p
P/E Ratio
105.13
Dividend Yield
N/A
Market Cap
$1165.56 billion
Rev. per Employee
$302,178
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 147.20
-4.57 -3.01%
Volume: 79.31M
Sept. 28, 2022 12:33p
P/E Ratio
24.35
Dividend Yield
0.62%
Market Cap
$2438.90 billion
Rev. per Employee
$2.52M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 240.13
+15.77 +7.03%
Volume: 8.87M
Sept. 28, 2022 12:33p
P/E Ratio
21.41
Dividend Yield
N/A
Market Cap
$99.77 billion
Rev. per Employee
$2.75M
loading...
/zigman2/quotes/202490156/lastsale
US : U.S.: Nasdaq
$ 99.37
+1.87 +1.92%
Volume: 15.01M
Sept. 28, 2022 12:33p
P/E Ratio
18.59
Dividend Yield
N/A
Market Cap
$1275.64 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 99.99
+1.90 +1.94%
Volume: 11.46M
Sept. 28, 2022 12:33p
P/E Ratio
18.70
Dividend Yield
N/A
Market Cap
$1275.64 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 239.71
+3.30 +1.39%
Volume: 14.25M
Sept. 28, 2022 12:33p
P/E Ratio
24.96
Dividend Yield
1.13%
Market Cap
$1763.12 billion
Rev. per Employee
$897,149
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 116.95
+2.54 +2.22%
Volume: 26.35M
Sept. 28, 2022 12:33p
P/E Ratio
105.13
Dividend Yield
N/A
Market Cap
$1165.56 billion
Rev. per Employee
$302,178
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 147.20
-4.57 -3.01%
Volume: 79.31M
Sept. 28, 2022 12:33p
P/E Ratio
24.35
Dividend Yield
0.62%
Market Cap
$2438.90 billion
Rev. per Employee
$2.52M
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 240.13
+15.77 +7.03%
Volume: 8.87M
Sept. 28, 2022 12:33p
P/E Ratio
21.41
Dividend Yield
N/A
Market Cap
$99.77 billion
Rev. per Employee
$2.75M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 99.99
+1.90 +1.94%
Volume: 11.46M
Sept. 28, 2022 12:33p
P/E Ratio
18.70
Dividend Yield
N/A
Market Cap
$1275.64 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/202490156/lastsale
US : U.S.: Nasdaq
$ 99.37
+1.87 +1.92%
Volume: 15.01M
Sept. 28, 2022 12:33p
P/E Ratio
18.59
Dividend Yield
N/A
Market Cap
$1275.64 billion
Rev. per Employee
$1.77M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 239.71
+3.30 +1.39%
Volume: 14.25M
Sept. 28, 2022 12:33p
P/E Ratio
24.96
Dividend Yield
1.13%
Market Cap
$1763.12 billion
Rev. per Employee
$897,149
loading...
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