Dividend yield: 3.7%
International Business Machines (IBM, $164.20) has the blues. The stock has gone virtually nowhere in the past year, in a strong market. “It is probably the most hated stock in the Dow Jones Industrial Average other than General Electric,” says Steven Check, a value investor at Check Capital Management, which has $1.5 billion under management. IBM has a forward price earnings ratio of less than 12, compared to 23 for Microsoft (MSFT).
Of course, hated names often are the ones most loved by value investors. IBM is a great example. Check counts it among his holdings in managed accounts and at his Blue Chip Investor Fund (BCIFX), which has outperformed its category by 2 percentage points a year, annualized, over the past three years. AFAM’s Buckingham also likes Big Blue.
IBM may be in old-school mainframe computers. But that’s not so bad. They still play a big role inside many companies because they’re reliable and secure. IBM recently rolled out a new version, the z14, and sales are picking up. IBM’s core mainframe business serves as a source of stability and funding for its “strategic Imperatives,” like analytics and cloud computing.
“It isn’t going to take too much in the way of good news for this stock to finally react,” Check says. A shift in investor sentiment could work wonders. Check points out that Microsoft shares have more than doubled in the past three years, even though earnings have barely budged from 2013-14 levels – thanks to a sentiment shift alone. Meanwhile, because of IBM’s core strengths, the downside is limited.
“IBM is not going away,” Check says. “Limit the downside, and the upside will take care of itself, eventually.”