Summary
- Investors' sentiment towards IBM oscillates between unenthused and apathy.
- There is more to IBM than a large dividend.
- Ultimately, IBM is very cheaply valued.
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Investment Thesis
IBM (IBM) shares have gone largely nowhere the past seven years. However, despite numerous issues, particularly those concerning poor management, there is still enough of a pricing discount to make for a compelling investment case.
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Investor Sentiment: IBM vs. Cloud Sector
I have followed IBM for a few years, including through the company's dark Q4 2018 period when very few other commentators were sticking their necks out - I was continuing to advocate for rationality and to "buy when no one else will".
Ultimately, there is no question that IBM's Q4 2018 and Q1 2019 results were disappointing. And investors today are largely staying on the sidelines, waiting for the company's Q2 2019 results (on the 17th of July) to obtain clarity on whether the lackluster performance from Q4 2018 and Q1 2019 is likely to continue or whether indeed its expensive acquisition of Red Hat (RHT) for $34 billion is likely to be what propels IBM's revenue forward.
And I don't have the answer to that question. However, this question misses the point entirely. Whether or not this next quarter miraculously improves IBM's near-term performance is beside the point.
What ultimately matters is that its market cap trades for just under 10x free cash flow, which for a well-diversified conglomerate is unreasonably cheap.
Furthermore, if you follow this sector to any extent, you will have no doubt noticed that from Salesforce (CRM) to Amazon's AWS (AMZN), anything in any way cloud-related is trading with a premium valuation. In fact, even Cloudera (CLDR), after it took a huge hit and saw its share price sell-off dramatically, still has a red-hot valuation today.
