By Philip van Doorn, MarketWatch
Jon Simon/Feature Photo Service for IBM
(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|
Scroll the table to see all the data — especially the price-to-earnings ratios.
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.