A Global Leader in Technology Maintains an Earnings Lead Over the Competition
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global leader in technology, International Business Machines Corp (NYSE: IBM), left much to be desired for investors last month when they publicized their less than impressive third quarter results. Shockingly, IBM announced a 5% decline in revenue from the third quarter of last year. However, during that time, expenses were decreased adequately enough to balance the earnings versus performance ratio. IBM share counts came in lower than anticipated, yet the quarterly earnings of each share increased to $3.33.
Regardless, the primary focus amongst investors hinged on the widespread belief that International Business Machines had not succeeded in meeting much-anticipated expectations, and the stock price plummeted 3-4% during after-hours trading. Don’t count them out of the game just yet, however.
The Average Cost of Stocks Fall, While Earnings Rise
IBM has shown tenacity for trading at fifteen times trailing earnings. With the average earnings per share increasing slightly, and the average cost of stocks decreasing, this number has experienced a downward slide. While it is never pleasant from an investment perspective to witness revenue waning, it should be noted that IBM still maintains a number of significant attractors and advantages. Not only does the globally renowned firm have a large market capitalization of nearly $230 billion, they have also displayed serious indicators of positive progress in their transition from hardware to software and services.
It would be interesting to learn investment guru, Warren Buffett’s take on International Business Machines' latest results, especially given that Berkshire Hathaway holds a 5.3% stake in the technology firm. At the end of June 2012, the investment house fronted by Buffett owned 67 million shares; an increase of nearly 3% since April, making IBM one of the top three holdings in Berkshire Hathaway’s 13F portfolio.
Hewlett-Packard and Dell Fail to Keep Pace with IBM’s Investments Even in Uncertain Times
Skeptical investors might take the initiative and compare the health of IBM to that of leading competitors Hewlett-Packard (NYSE: HPQ) or Dell (NASDAQ: DELL), with respect to each firm’s drive to combine hardware sales and a serious push towards software and services. However, traditionally these firms have not fared as well as IBM. Hewlett-Packard was unable to see profits in the last fiscal year, and Dell has reported an 18% decline in earnings in their second fiscal quarter.
Even moving forward, the market is very skeptical of Hewlett-Packard’s ability to generate positive earnings. With Dell and HP trading at four and six times their forward earnings estimates, their dividend yields (reaching near to 3.5% for both firms) raise eyebrows and are certainly something to be cautious of, especially given their instability in terms of revenue generation and earning potential. At this point, it would be in poor taste to follow the insights of their analysts verbatim.
The Outlook is Not as Bad as It May Appear
As mentioned earlier, IBM still has a few impressive tricks up its sleeve. The future forecasts great things in terms of profitability and inspiring business and investment strategies. The long and short of it is that, although displeasing, the recent fiscal announcements from International Business Machines are not entirely horrible. Granted, declines in revenue are never easy to swallow; however, credit must be given to the firm for their ability to maintain a leading position in terms of earnings and their value.
Get in while it is Good
If the actions of market-minded investors bare any weight on the health of IBM stock, now is as good a time as any to consider adding or increasing IBM shares to any well-diversified portfolio. While the third quarter was less than admirable, it was still far from disastrous. Shares of IBM are available at an attractive rate and have the potential to deliver a modest to high level of return as earnings continue their upward climb. Cautious investors may wish to hold on to their current stocks as earnings continue to grow; however, for the value minded investor now is as good a time as any to enter the race and get in on the ground floor in order to gain an advantage over the forecasted positive upturns of the 2013 fiscal.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services recommend Dell and International Business Machines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.