I Think This Is the Most Misunderstood Tech Stock on the Market Right Now — and That’s Exactly Why I’m Buying
I own exactly two technology stocks, International Business Machines (NYSE: IBM) and Texas Instruments (NASDAQ: TXN). Technology changes so quickly that I’m reluctant to buy trendy stocks in the sector, but old stalwarts with long histories of rewarding investors with dividend increases are right up my alley. Of the two tech stocks I own, I…
I own exactly two technology stocks, International Business Machines(NYSE: IBM) and Texas Instruments(NASDAQ: TXN). Technology changes so quickly that I’m reluctant to buy trendy stocks in the sector, but old stalwarts with long histories of rewarding investors with dividend increases are right up my alley.
Of the two tech stocks I own, I think IBM is the most misunderstood. Not just today, but from a big-picture perspective. Here’s why and why I’m happily buying more shares every time I get a quarterly dividend check.
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Why I bought IBM
If I’m not a technology-focused investor, why did I buy shares of International Business Machines? For starters, when I purchased the stock in early 2016, the company was deeply out of favor. It had a historically high dividend yield and was in the middle of a massive corporate makeover. It was selling businesses that generated substantial revenue, but that delivered little in the way of profits. And it was buying businesses with more compelling long-term growth opportunities, but not much current revenue.
I viewed IBM as a low-risk turnaround story, and my thesis played out very well. I’m not taking profits and moving one, however, because I think this technology stock has a differentiated business model. That has nothing to do with its current focus on cloud computing, artificial intelligence, and quantum computing.
Of course, all of those are attractive business opportunities that should serve the business well. However, I believe this is where the market’s misunderstanding starts. IBM doesn’t make big splashy headlines in any of its business lines, like Alphabet’s(NASDAQ: GOOG) Google or Microsoft(NASDAQ: MSFT). That’s because Google and Microsoft have businesses that directly touch consumers. IBM’s customers are largely other businesses, many of which want their technology decisions to stay out of the headlines. Thus, IBM’s successes often don’t get the attention they deserve.
The biggest misunderstanding of all
The misunderstanding of IBM’s B-to-B focus, however, pales in comparison to the company’s proven history of adaptation. This is what really drew me to the stock and keeps me reinvesting the dividends every quarter, buying more and more of it. Unlike many of today’s high-profile tech giants, IBM has been in existence for more than 100 years.
When it started, the company sold things like scales. Over the years, it has been instrumental in developing mainframe and desktop computers, and in establishing computer services as a business model, among other things. The company’s evolution isn’t always smooth or easy, but IBM has proven it knows how to adapt and change over time. The current incarnation of the business isn’t likely to be the last, noting that it was way ahead of the curve on quantum computing.
Too many investors think about what will happen in the next hour, day, week, month, or year. I think about what will happen over the next decade, and longer. Look at the chart for SoundHound AI(NASDAQ: SOUN). This one-time Wall Street darling is not only a very young business, but investors have clearly swung between euphoria and pessimism in a very short period.
I’m not at all certain that SoundHound will exist in a decade because a competitor with a good AI model could quickly eat its lunch. I am highly confident that IBM will remain around and do what it takes to stay relevant. IBM’s large size and established business relationships are part of that, but the company’s culture is even more important. In fact, in my opinion, the long-term value of IBM’s corporate culture is what is most overlooked on Wall Street.
IBM isn’t exciting, but it is a proven business leader
IBM isn’t as attractively priced as when I bought it, so value investors probably won’t be interested in the stock. But if you are looking at the tech sector today, don’t overlook this tech giant and its well above market 2.6% dividend yield. It isn’t a headline-grabbing name on Wall Street, but it has proven it can remain at the leading edge of the tech sector even as the pace of technological development seems to keep accelerating.
Should you buy stock in International Business Machines right now?
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Reuben Gregg Brewer has positions in International Business Machines and Texas Instruments. The Motley Fool has positions in and recommends Alphabet, International Business Machines, Microsoft, SoundHound AI, and Texas Instruments. The Motley Fool has a disclosure policy.
I Think This Is the Most Misunderstood Tech Stock on the Market Right Now — and That’s Exactly Why I’m Buying was originally published by The Motley Fool
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