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Why Investors Should Care About IBM

ARMONK, New York ( TheStreet) -- IBM (IBM - Get Report) may not be the sexiest name in tech, but investors still have plenty of reasons to love the 100-year-old hardware and software giant.

"I think that this is an industry that treasures new things; there's almost a natural tendency to devalue companies that have a history," said Charles King, president of research firm Pund-IT. "And in the IT world, there's no other company around that has the history of IBM."
IBM may not be tech's sexiest company, but investors should still check out the hardware and software giant.

From its early years selling tabulating machines, Big Blue has morphed into a 21st century powerhouse touting a vast range of tech products from mainframes and servers to a growing portfolio of software and services. Based on Monday's close, IBM has now even surpassed Microsoft's (MSFT) market cap for the first time in 15 years, highlighting its ongoing momentum.

"Large cap investors have fewer and fewer places to go; Cisco (CSCO - Get Report), HP (HPQ - Get Report), and Microsoft are on their backs, while others that are doing well have sky-high valuations such as NetApp (NTAP), Oracle (ORCL) and VMware (VMW)," added another analyst, who asked not to be named. "That leaves a precious few in the middle [such as] IBM and EMC (EMC)."

Despite consistently strong results, though, investors still seem more inclined towards the glitz and glamour of Apple (AAPL - Get Report) or even Google (GOOG - Get Report). Over the last ten years, IBM's shares have climbed just 43% to reach $168.36, compared to a massive hike of more than 2742% at Apple. Google's stock has gained more than 378% since its 2004 IPO.

The recent struggles of Cisco and HP, however, have added significantly to IBM's allure. "My view is that IBM has performed well and has a great business model compared to other large cap tech names," explained Brian Marshall, an analyst at Gleacher & Co. "Their commodity hardware revenue as a percentage of sales is only 20%, versus HP at around 50% and Dell (DELL) at 66%."

Marshall adds that IBM generates an impressive 22% of its total sales from software, pointing out that this is a high-margin, sticky, recurring business. HP, in contrast, generates just over 2% of its total revenue from software.

"IBM made a big bet about five or six years ago that computing would become increasingly commoditized and that the product differentiation would be defined more and more by software," explained Pund-IT's King. "They have continued to bet big on that -- IBM is still a strong player in IT hardware, but software [now] dominates the company's value proposition."
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