Investors should follow Buffett into IBM

Big Blue is set to make big bucks.

By Jonathan Berr Nov 14, 2011 12:00PM

Billionaire Warren Buffett, history's greatest investor, has struck again. Monday morning saw numerous reports that the Oracle of Omaha has snapped up a $10 billion stake in IBM (IBM). Like others blessed by Buffett, shares of Big Blue rose on the reports. IBM, though, remains a good buy for investors even with the Buffett bump.

The Armonk, N.Y., company has an attractive valuation even though it has already surged nearly 28% this year. It trades at a price-to-earnings ratio of 14.82, which, though lofty, is below its five-year high of 16.03, according to Reuters. 

 

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It also is under the 21.9 multiple of its industry peers and the 19.46 level of other companies in its sector. The median one-year target for Wall Street analysts is $200, well above $187.38, where it recently traded. Even with the so-called Law of Large Numbers,  IBM's results are impressive. The average earnings-per-share estimate of Wall Street analysts in the current quarter is $4.62, up from $4.18 a year earlier. Revenue is expected to increase 2.6% to $29.78 billion.

Shares of IBM were recently beaten up because the tech giant posted disappointing quarterly results. Even so, the earnings were still really good. Quarterly sales rose 7.8% to $26.2 billion -- $100 million under the $26.3 billion analysts expected

Though there were declines in every business, there were some bright spots that got overlooked. IBM's backlog in the last quarter was $137 billion, and the company signed $12.3 billion in services contracts, compared with $11 billion a year earlier. It posted growth in emerging economies such as China and Brazil for the fifth consecutive quarter.

As the economic recovery continues to lumber along, Fortune 500 companies are still finding it better to invest in computer hardware, software and related services. That trend shows no signs of easing. Corporate America reportedly has about $4 trillion in cash sitting on the sidelines. IBM, which focuses exclusively on corporate customers, is well-positioned to get its fair share of that mountain of cash.

Jonathan Berr does not own shares of the aforementioned stocks. Follow him on Twitter @jdberr.

Tags: ibm
5Comments
Nov 14, 2011 4:25PM
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Well of course if you buy billions of one stock you can manipulate it up then dump it to make millions.
Nov 14, 2011 5:04PM
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Buffet's doing a sort of bump & dump without the dump.
Nov 15, 2011 4:09AM
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Tragedy of Labor Rights Repression in IBM China 
http://wp.me/p1hDC3-​92

[ Editorial ] How Much IBM Can Get Away with is the Responsibility of the Media 
http://wp.me/p1hDC3-​aL

IBM detained mother of ex-employee on the day of centennial
http://wp.me/p1hDC3-​8I
Nov 14, 2011 7:36PM
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Here is a great example of the problem with the 1%.  They have the ability to manipulate the market with their purchases and it has nothing to do with the strength of the company.   If one man can cause people to buy a certain stock, that is way too much power and influence.  Like sheep to the slaughter, people will follow his footsteps and end up loosing everything when it does not turn out to be such a hot pick.  Not to mention that he can afford to loose the $10 billion as it will not effect his lifestyle one bit.  Instead of sending his $ to the stock market, why does he not help people stay in their homes?  It is because the 1% could care less about the 99%.  That is why this country is not recovering and that is why there are no jobs, and that is why wages have stagnated, and that is why people are protesting, and that is why we have all lost faith in our Gov and the businesses in this country.  He is not to be held up as a role model, but instead is a cautionary tale to all if you want to become rich beyond belief and loose your soul as well. 

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