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Thinking Forward with IBM

|Includes: International Business Machines Corporation (IBM)

We think of IBM (NYSE: IBM) as a company that makes computers and artificial intelligence, but they didn't start out that way. Founded a century ago, the company initially made tabulating machines, scales, and time recorders, but constantly adapted its products and practices to reflect a fast-changing world. All this and an ethical company too!


IBM was a forward-thinking company long before the concept became widely known, let alone adopted by others. They were among the first employers to provide group life insurance, survivor benefits, and paid vacations. IBM has provided equal pay for equal work since they started training female employees in 1935, trained and employed disabled applicants since 1942, and insisted on building racially integrated workplaces in Southern states years before it was legal to do so.


In 1953, company president Thomas Watson Jr. stated in a company-wide letter that IBM needed to hire the best people, regardless of their race, ethnicity, or gender. The company's nondiscrimination policy was expanded to include national origin and age in 1961, and sexual orientation in 1984. All of these policies were controversial, if not shocking, when they were adopted. In 2011, it's easy to forget how extraordinarily progressive IBM's policies have been throughout the company's history.


IBM stated that maintaining such an open-minded policy actually worked in the company's favor, since they would be hiring talented workers that competing firms would turn down. I believe they were, and still are, correct. After all, it was IBM that developed a great many things that have revolutionized the world - most notably ATMs, magnetic stripe cards, UPC barcodes, and the SABRE airline reservation system. Earlier this year, Jeopardy! viewers got to see IBM's Watson computer, one of the most advanced artificial intelligence systems created to date, beat two of the game's most notable champions. (IBM even split Watson's $1 million prize between two charities.)


IBM looks to the future, not just the present. This mindset will no doubt contribute to the company's never-ending list of innovations. It will be interesting to see what IBM develops with its current cash balance of over $11 billion. The company does have roughly $30 billion in debt, but since EBITDA is $26.4 billion, I consider the debt level more than acceptable. Currently, IBM is collaborating with Japanese firm Tokyo Ohka Kogyo Co. Ltd. to develop cheaper and more efficient solar cells, which will enable wider adoption of solar power. Demand for cleaner, less costly energy is on the rise, and IBM can expect healthy profits if their efforts go well.


I'm sure we all wish we'd bought IBM stock way back in the 1950s when it was a nickel a share - or last August, when it dropped to $122.78. I believe that, with IBM, the best is yet to come. I suggest buying under $185. IBM should pay off nicely in the coming decades - fitting for a company that has often been ahead of the times.