Most people wouldn’t use the phrase “hot company” to characterize IBM. In a year when investors fled from all the major tech equities, Big Blue came out ahead. This has been the worst year for the Nasdaq since 2008. Growth companies have been penalized as a result of high gas costs, rising inflation, and the Federal Reserve’s continuous pace of rate hikes, while more established, less volatile names that are seen as more recession-resistant have gained in popularity.
Names in technology that were popular during the Covid era took the most hit when the economy opened and people went back to their old ways of doing things.
IBM is one of just two U.S. technology businesses valued at $50 billion or more to have positive returns so far in 2022. The stock was up 6% year-to-date as of market closing on Friday. VMware is up 5 percent after agreeing to be purchased by Broadcom for $61 billion in May.
While Meta, Amazon, and Tesla have taken a beating, investors have flocked to 111-year-old IBM in the hopes of profiting from the company’s consistent revenues. Other popular investments include Exxon Mobil, Merck, and other healthcare and industrial giants. Bernstein Research analysts said in a letter to clients on December 20 that IBM is “trading significantly over its historical range.” The stock is currently rated “hold” by the company.
Don’t try to pass IBM off as a growth stock and expect anyone to believe you. The company has been growing at single-digit rates year after year, and only last year it separated its managed infrastructure services division, Kyndryl, into a publicly listed company of its own. About 90,000 people were eliminated as a result.
But in the most recent quarter, IBM earned $752 million in free cash flow, up 25% year over year, and distributed $1.5 billion in dividends. As a result of a successful third quarter, the corporation has increased its annual projection.
According to Aaron Foresman, an equities analyst at the Atlanta-based Crawford Investment Counsel, which mostly deals in dividends and income, IBM was evaluated in 2016 and deemed unsuitable for a significant investment at the time.