I'm looking at International Business Machines (IBM) as a future buy. I was researching an article for Seeking Alpha (here) when IBM's recent stock drop brought it to my investment radar screen. As can be seen in the yahoo stock screen below it has been on a downward tread since October with a slight rise recently.
IBM stock chart courtesy of Yahoo Finance.
As an investor and not a gambler I tread lightly on dropping or rising stocks. I use the strong moves in a stock price to do some research into its recent moves. Once I understand the reason for the strong directional moves then the stock becomes an investment instead of a gamble.
IBM is so iconic globally that I'm going to start with its financials to make sure they are solid and robust.
IBM press release for it's third quarter 2012 (financials) is telling. Third quarter net revenues were flat at $3.8 Billion. IBM's U.K. pension charges took $162 million for the third quarter. While currency fluctuations for the third quarter took another $1 Billion. Finally an increase in long term debt of $2.4 Billion for the quarter, brings IBM's total debt to $33.7 Billion. IBM only has $12.3 Billion in cash. No wonder IBM stock has been going down since October 2012.
Still, I feel IBM is hiding something special. Warren Buffet added most his 67 million IBM shares during 2012. I have a feeling Warren knows what IBM has hidden and I'm going to find out.
I need to start reading articles on IBM to better understand its business. (Motley Fool) website usually has an interesting take on companies. Here are a bunch of articles on IBM from (Motley Fool). The first (article) deals with IBM's strength as a diversified IT company who sold off it's PC business long ago while it's PC rivals; Dell Inc. (DELL) and Hewlett-Packard Co. (HP) remained in the PC business to their fiscal and revenue detriment. This ability to see the future and completely remake IBM is what I'm sensing and what Warren sees about the current IBM senior management. IBM Senior management saw the writing on the wall once again and is moving aggressively to capitalize on this new revenue stream. As an investor and not a gambler in the markets I need to undercover what IBM has uncovered and how they are preparing and implementing for this coming technological paradigm shift.
I continue reading through more articles on IBM to see I can uncover their future revenue mother lode. This (article) on IBM facing aggressive competition in it's enterprise computer sector is forecasting major storms for IBM if it does not prepare for its competitors. Cash rich behemoths like Google (GOOG) with $45.72 Billion in cash and $3 Billion in long term debt. Microsoft (MSFT) with $66.64 Billion in cash and $12 Billion in long term debt. Apple (AAPL) with over $121 Billion in cash and no long term debt pose a real threat to IBM in the enterprise computer sector. IBM with over $33 Billion in debt and only a little over $12.3 Billion in cash has it's hands full as these three global competitors seek to diversify much as IBM did years ago. Senior management at IBM needs to lower it's debt and increase its cash base while developing the new core business I'm trying to uncover or face losing it's leadership position in the lucrative enterprise computer sector. This (article) discusses IBM advances in carbon fiber nano chip technology that is three generations ahead of both Intel Corp. (INTC) and Advanced Micro Devices Inc. (AMD) which use silicon based chips. The (article) also discusses the fact that IBM has earmarked $12.3 Billion to buy back shares. I think IBM should set half this cash to reduce debt and the other half to add to its cash base to be able to better take on Google, Microsoft and Apple in it's own enterprise backyard. This (article) states that IBM has spent $16 Billion in acquisitions over the last 5 years with not much to show on the revenue side. I will come back to these investments later. This (article) is good one on currency fluctuations which hit IBM for a 3% loss on its revenue stream. IBM senior management has to address this currency issue fast as the US dollar starts its descent in 2013. An enlightening (article) on big data and how its used by governments, corporations and individuals. This is the kind of article that I like to undercover. I start a search for articles on big data and data mining. I have absolutely no idea what these industry topics are, but as an investor looking to undercover an unknown mother lode of future revenue growth these seems to be what IBM has skillfully and stealthy been pursuing. Warren Buffet saw what IBM was doing and starting in 2011 through 2012 has so far added over 67 million shares of IBM. This (article) on IBM social data mining is the future revenue mother lode I was looking for. See the chart below from (IBM report).
Figure 3 above courtesy of IBM.
By putting together the above two articles on data mining with IBM report on data development and the graph above I'm peering into the future catalyst for organizations of all sizes to enrich and keep ahead of competitors by figuring out how to mine, extract, interpret and use the mountains of data each every organization now collects on a daily basis. According to (IBM) we humans collectively generate 2.5 quintillion bytes of data everyday. I now start searching to see how IBM is monetizing and investing in this future mother lode of revenue. I find this (article) on IBM opening a data mining and research center in Ohio. Then in this (article) IBM acquires kenexa data mining company to help IBM get a head start on all global competitors. I now understand why Warren Buffet bought most of his 67 million shares of IBM in 2012. Warren uncovered what IBM was doing with data mining and bought heavy. Warren avoids technology company's, but with data mining IBM's (Dividend yield) which is modest compared to other company's, will be rewarding him for years to come with quarterly increases due to revenues generated by helping company's of all sizes, shapes and industries understand, interpret, exploit and profit from their vast data archives.
IBM has successfully reinvented itself several times over its 100+ year history. Big data and its mining is the kind of catalyst that will help IBM reinvent itself and reap large future revenues streams for years to come. IBM is a bargain at current prices.
Disclosure: I am long IBM.