Editors' Pick: Originally published Feb. 19.
"Creative destruction," a term coined by famed economist Joseph Schumpeter, is now at work to revitalize IBM (IBM) , the grandfather of information technology. But judging by the drumbeat of pessimism over IBM, you wouldn't know it.
Founded in 1911, IBM is continually dismissed as a hidebound corporate relic that's destined for the tech sector's historical dustbin. IBM's headquarters in the Westchester hamlet of Armonk, N.Y. is a long way from the cooler environs of Silicon Valley, where the hipster billionaires behind Apple and Alphabet are creating world-changing gadgets, computer software and online services.
But the investment herd is quite mistaken about IBM, which spells investment opportunity for you. And while you wait for IBM's strategic moves to lift the stock's price, you can enjoy the high dividend. In these days of 1% CDs, it's tough to find a yield worth getting excited about, but IBM's dividend yield of 3.9% is nothing to sneeze at. Here's why IBM is a rare opportunity in what promises to be a tough year for the broader markets.
On Thursday, "Big Blue" took another step to proving the conventional wisdom wrong, when it announced it would pay $2.6 billion for Truven Health Analytics, a health care information technology company that has accumulated data on the cost and treatment of about 300 million patients. This marks the fourth company that IBM has bought since it formed its Watson Health division last April, bringing the total spent on health care acquisitions to $4 billion.
Truven possesses crucial payment information on patients that includes detailed coding on disease categories, diagnoses and treatments. IBM's Truven acquisition is another sign that IBM's management, led by CEO Virginia Rometty, won't be deterred from its strategic repositioning toward health IT, despite recent disappointing operating results for the company as a whole.
Super investor Warren Buffett grasps the wisdom behind IBM's reinvention, a clear indication that IBM's blueprint isn't desperate wishful thinking. Buffett's Berkshire Hathaway increased its stake in IBM in the third quarter of last year by about 2% to 81 million shares from 79.6 million, for a value of $11.7 billion. That makes IBM Berkshire Hathaway's fourth biggest holding.
Rometty and her team understand that the most valuable commodity in the business world today is information, especially in the health care field, where success isn't just measured in dollars and cents but also in human lives.