Homepage / Technology / Long-suffering IBM is finally a buy, says tech investor
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election

Technology

Long-suffering IBM is finally a buy, says tech investor

Who Says Elephants Can’t Dance?

This was CEO Lou Gerstner’s book title back in 2003 about bringing IBM back from the brink of insolvency to lead the computer business once again. When you look at IBM today, the last time revenue grew year-over-year was back in the March quarter of 2012. That is not a typo. 2012!

But we think the elephant may be starting to warm up its dance moves with a new partner, the Z14 mainframe. The Z14 has pervasive encryption which increases its cryptographic performance over the prior generation Z13 by 7 times due to a 4 times increase in the amount of silicon dedicated to this function.

Why does this matter? Yahoo recently admitted that all 3 billion of their accounts were hacked. More importantly Equifax, one of the nation’s three major credit reporting firms, announced the unauthorized accessing of Social Security numbers and birth dates of up to 143 million U.S. consumers. There are only roughly 325 million people in the entire US.

What is interesting is that of all the 9 billion data records that have been hacked over the last several years, only 4 percent of them were encrypted. If more had been protected by encryption, it might have deterred some of those hackers. After all, what use is getting a whole bunch of data if you cannot figure out what it means?

Do corporations care about the new IBM mainframe? Roughly half of IBM’s mainframe business is in financial services. IBM mainframes handle close to 90 percent of all credit card transactions ($7.7 trillion per year.) All of the 10 top insurers, 44 of the top 50 banks, 18 of the top 25 retailer and 90 percent of the largest airlines use IBM mainframes.

So what happened when IBM launched the new Z14 on September 13th? IBM Z revenue grew 62 percent year over year in third quarter after being down 33 percent year over year in the prior quarter and systems hardware revenue was up 10 percent year over year in third quarter after being down 10 percent year over year in the prior quarter.

As a result, after missing revenue expectations in the prior two quarters, IBM beat revenues by close to 3 percent in the September quarter. This was the biggest beat since the June quarter of 2011.

Though we estimate IBM mainframe revenues are less than 5 percent of the company’s total revenues, customers buy software, services and storage as well that work with the mainframe. In total we believe that mainframes drive over 20 percent of IBMs total revenues and over 30 percent of IBMs total profits.

As for sentiment, it could not be much worse. Less than 30 percent of Wall Street analysts have a buy on the stock and over 10 percent have a sell. IBM’s stock is down 7 percent in 2017 in a raging bull market for all stocks but particularly technology stocks. As a result, IBM’s price to earnings ratio is a paltry 11 times versus the S&P at 20 times. IBM also has a dividend yield of 3.8 percent versus the S&P at 1.9 percent.

How risky is the stock in the event of a stock market sell-off? There are so few people left that are bullish on the stock that IBM was actually up on Wednesday when the S&P Information Technology Index declined about 3 percent and the FANG stocks declined 4 percent.

The 3.8 percent dividend yield is also very juicy with the S&P dividend yield at 1.9 percent and 10-year treasury yields at 2.4 percent. If we do finally get the long overdue correction in the second longest bull market since World War II, these defensive characteristics, much like on Wednesday, will become a lot more meaningful.

In summary, IBM may have had two left feet for the last 5 years, but we think their new dance partner, the Z14 mainframe, may get the elephant shimmying again over the next year.

Commentary by Dan Niles, founding partner of AlphaOne Capital Partners and senior portfolio manager of the AlphaOne Satori Fund. Previously, he was a managing director at Neuberger Berman, a subsidiary of Lehman Brothers.

Disclosures: This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Readers should not assume that any investments in securities, companies, sectors or markets identified and described were or will be profitable. This material has been prepared by AlphaOne Capital Partners, LLC on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. AlphaOne Capital Partners, LLC has not sought to independently verify information taken from public and third party sources and does not make any representation or warranty as to the accuracy, completeness or reliability of the information contained herein. All information is current as of the date of this material and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Certain products and services may not be available in all jurisdictions or to all client types. Investing entails risks, including possible loss of principal.

The views expressed are those of Mr. Niles and do not represent the views of AlphaOne Capital Partners, LLC, its portfolio managers, employees or affiliates. These views are current as of the time of this presentation and are subject to change without notice. This material is not intended to be a formal research report or recommendation and should not be construed as an offer to sell or the solicitation of an offer to buy any security. AlphaOne Capital Partners, LLC and its clients may have long or short positions in some or all of the securities discussed. Before acting on any advice or recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Mr. Niles does not accept any responsibility to update any opinions or other information contained in this document. Before acting on any advice, opinions or recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

Source: Tech CNBC
Long-suffering IBM is finally a buy, says tech investor

Comments are closed.