International Business Machines (IBM) Stock Analysis Pollie Style.
Two weeks ago I was invited by my local bank to attend a meeting about Bit coins. No I don’t want to invest in Bit coins (In my humble opinion Bit coins aren’t an investment, it is gambling. This because there is no value underneath the coin) but I was curious about the speaker, Rutger van Zuidam (@rutgervz). Rutger is an entrepreneur and owner of DutchChain, one of the leading Blockchain businesses in The Netherlands.
He explained block chain in his own words. He has the gift of explaining difficult things in a very easy to understand way. If you ever have the opportunity to attend one of his meetings, do go! It is definitely worth your time.
On his website he has a very easy to understand YouTube movie “The real value of bitcoin and crypto currency technology – The Blockchain explained” This video is certainly worth watching! All credits to the DutchChain company.
After his presentation I saw the possibilities of Blockchain and I was curious if there were companies on the stock market, which already have incorporated the Blockchain in their products/programs. I’ll try to write a blog post on Blockchain later on.
After some research I found a well know companies that already is using the Blockchain. They have a whole website on their products and the Blockchain. And this company is IBM.
So this analysis is on International Business Machines (IBM).
From google finance: IBM is an American multinational technology company headquartered in Armonk, New York, United States, with operations in over 170 countries. The company originated in 1911 as the Computing-Tabulating-Recording Company (CTR) and was renamed “International Business Machines” in 1924.
IBM manufactures and markets computer hardware, middleware and software, and provides hosting and consulting services. IBM is also a major research organization, holding the record for most patents generated by a business (as of 2018) for 25 consecutive years. Inventions by IBM include the automated teller machine (ATM), the PC, the floppy disk, the hard disk drive, the magnetic stripe card, the relational database, the SQL programming language, the UPC barcode, and dynamic random-access memory (DRAM).
Nicknamed Big Blue, IBM is one of 30 companies included in the Dow Jones Industrial Average and one of the world’s largest employers, with (as of 2016) nearly 380,000 employees.
Can I explain this to a 10-year old? What Does This Company Do?
This company makes computer hardware and software. It also invented a lot of machines that you are using every day, e.g. ATM and the PC.
Dividend Aristocrat: IBM has raised its dividend for 22 consecutive years. It is therefore a Dividend Contender on the CCC-list from David Fish! (No.144). They are a three star stock on Morningstar.com. Because it hasn’t raised its dividend for more than 25 years, it is a Fail!
Dividend Yield > 2.5%: The dividend Yield of IBM is 3.91%. This is above the industry average of 2.0%, and above its 5 years average (3.1%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is roughly 50%. This is below the maximum ratio, and that is what a DGI wants. IBM also a Pass on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 7.3, 11.6, 12.3 and 14.7. With a 3-years average around 11% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. IBM has a current P/E ratio of 10.67. The industry average is 20.6. The P/E ratio is below the industry average. And it is slightly lower that its 5-years average (12.1). The P/E-ratio is below the requirement of the Pollie-Code. So this is a Pass.
EPS > 0: The EPS is 6.11 Therefore IBM passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 60.60%. This is another Pass.
Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 136.640 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 16.2. So it is another Pass for IBM.
Stock price 52wk high-25%: The 52 wk. high and low are: 182.79 and 139.13. This means that IBM will be in my buying zone when the stock price is below 171.88 ((182.79-139.13)*0.75 + 139.13). At this moment IBM is trading for $152.01. Therefore it is a Pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for IBM is 0.94.
Debt/Equity ratio: The Debt/Equity ratio of IBM is around 2. This is very high. But IBM generates over $13 billion in annual free cash flow, and it should not have problems repaying its debt obligations.
When I look at my analysis, IBM passed 9 out of 10 metrics of the Pollie-code!! The only metric it is failing is that IBM isn’t a Dividend Aristocrat yet, but is on its way.
If we take a look at the company, you can see a leading company (or one of the leaders) in Blokchain, AI and Cloud. This means that they have attracted the right people/professionals. Furthermore IBM is soon to become a Dividend Aristocrat. All in all this makes me very happy. And in my opinion is IBM a good buy for the long-term investor.
All this information together I certainly will put IBM on my watch list for my Vrijheid Fonds and probably will take action in the near future.
What are you – the readers, thoughts on IBM? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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