5 Reasons IBM Should Be Part of Your Portfolio

| About: International Business (IBM)

By Carl Delfeld

I remember it clearly. A hot summer day. Wearing a blue suit, starched white shirt, crimson tie and bearing a rather thin resume, I marched into the company’s offices on Boylston Street in Boston for my first real job interview.

I was turned down flat. But somehow the employer thrived without me and became America’s bluest of blue-chip companies.

The company was IBM (NYSE: IBM). A blue-chip company that delivers quality and consistent growth to investors, and IBM, founded a century ago, is tough to beat on both accounts. This is saying something for a company with $100 billion in annual global revenue coupled with impressive 45-percent gross margins and 15-percent net profit margins in 2010.

In the midst of this volatile market and growing investor anxiety, I think its time to put some cash to work.

Here are five reasons to put IBM’s continued growth and success in your core global portfolio today…

1. IBM’s Quality Leadership on a Global Scale

IBM has been blessed with outstanding leadership at the top. Tom Watson is of course famous as the gruff but driven founder readily handing out cash on the spot for ideas he liked. Since then there have been only seven other CEOs of IBM.

But leadership counts all the way down the line. IBM is always scouring the planet for talent. Of its 400,000 employees, 75 percent were recruited and are based overseas.

2. Innovation and Flexible Growth Strategy

For IBM, as for other great companies, the only constant is change. IBM began by making clocks and cheese slicers and then the punched-card tabulator. After that came one innovation after another: typewriters, vacuum tube calculators, magnetic tape, the first disk drive, the memory chip, FORTRAN, fractals, ATMs, mainframes, mini-computers, personal computers and supercomputers.

Most recently, Lou Gerstner moved the company away from hardware into higher margin consulting and services business. The current CEO, Sam Palmisano, a bear of a man who played football at Johns Hopkins, took the reins in 2002, doubling down on this strategy with a fierce focus on clients, growth markets and research. In 2005, he boldly sold IBM’s personal computer business to China’s Lenovo since it was evolving into a low margin commodity business.

You can’t argue with success.

Revenue has quadrupled on his watch. Software now contributes more to earnings than consulting and number crunching analytics is growing at a 20-percent clip. IBM is now an active player in 170 countries and sales to emerging markets have boomed in tandem with its “Smarter Planet” branding campaign. The goal is to use technology and systems to confront social problems like gridlock and pollution and the lack of power and healthcare.

3. Commitment to Research and Innovation

IBM doesn’t sit on its reputation. About $6 billion, or 6 percent of its $100 billion in revenue, is poured into intensive research and development. This firepower yielded an amazing 5,896 patents in 2010 alone. The company masterfully leverages its global network of staff and nine research labs.

4. Focus on Global Emerging Markets

In an interview with Fortune, Palmisano noted that emerging market countries spend about one to two percent of GDP on information technology while more developed countries spend roughly double that. This highlights IBM’s opportunities for growing with emerging markets.

Emerging markets such as Ghana, the Philippines, Turkey and Vietnam now account for two out of every three new clients. These new markets now represent 20 percent of total revenue and this is expected to reach 30 percent by 2015. An added bonus is that there’s less competition in these markets and this leads to higher margins. Sounds like double-barreled growth to me.

5. A Client First Approach & Manage for the Long Term

All the above attributes start with paying keen attention to clients and markets. IBM group heads spend about 70 percent of their time calling on clients and prospects. Even CEO Palmisano makes at least one sales call each and every day. Not only does this mean continued sales growth, it makes sure that IBM is managed for the long haul because it’s continually looking down the road for new ideas and growth markets. For a technology business to thrive as long as IBM has been around, its executives have to have their ears close to the ground.

No doubt IBM doesn’t offer the spectacular growth and upside that Apple does, but oftentimes, slow and steady wins the race.

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