|IBM may not be tech's sexiest company, but investors should still check out the hardware and software giant.|
ARMONK, New York ( TheStreet) -- IBM ( IBM) 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."
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), HP ( HPQ), 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) or even Google ( GOOG). 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."