This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why IBM Is as Cheap as Chips

NEW YORK ( TheStreet) -- Over the last five years IBM (IBM) has been very, very good for investors.

Since November 2008 the shares have more than doubled in value and the dividend has been increasing at regular intervals, standing now at 85 cents per share, a yield of 1.66%. IBM can well afford the $1 billion quarterly payout -- profits range from $3 billion to $5 billion each quarter.

Despite this, all is not well at Big Blue, at least according to analysts.

A quick calculation shows IBM's market cap is only 2.21 times its annual sales. The figure for Apple (AAPL) is 2.73, for Microsoft (MSFT) 3.12 and for Google (GOOG) 4.95. The only large tech company doing worse by this measure is Intel (INTC), at 1.96.

IBM is literally as cheap as chips.

Why? Stagnation on the top line is usually blamed. IBM sales today are no higher than in 2008. Its gains are explained entirely by rigid cost-cutting, which has slowly increased profit margins, and has gotten operating margins to near 25%, close to those of Apple and Google.

Moreover, IBM makes few waves. Check the news headlines around the company and you will find very little that's interesting. It's all new customers, new research results, new capabilities and new donations of gear. Services chief Michael Daniels recently sold a little over 10,000 shares, but he was in the process of retiring. On Wall Street $2 million is just a gold watch.

IBM has a road map with $20 billion in acquisitions due by the end of 2015, ZDNet reports . Most of the deals have been relatively modest, highlighted, according to Forbes, by $1.3 billion for Kenexa , a "talent acquisition" outfit, last year.

Analysts are pushing for the company to make a run at NetApp (NTAP), Bloomberg says, but the cloud storage company seems to be outside IBM's price range, at $12.9 billion. It's also a hardware company.

A more typical IBM buy is Butterfly Software, a data migration and analysis company out of England, which TechCrunch reports was quietly purchased in September.

Quartz thus calls IBM a "creaky old business," but in noting how most of its "big" software deals are in the past they're missing the point. What IBM is trying to build is a suite of "big data" and cloud applications, software that makes its own cloud services worth a premium price, and make it an obvious choice for private clouds.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,131.97 +100.83 0.59%
S&P 500 1,998.98 +14.85 0.75%
NASDAQ 4,552.7590 +33.8570 0.75%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs