|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Top Hedge Fund Gurus Hold IBM, Should You Too?
Posted by: Omar Venerio (IP Logged)
Date: June 24, 2014 08:52AM
In this article, let´s concentrate in International Business Machines Corp. (IBM), a major player in the hardware, software and services markets and has been Oracle (ORCL) ´s database rival. This giant has evolved from being a computer hardware vendor to a system, services and software company that focuses on integrated solutions.
Long-Term Growth Opportunities
While the company operates in over 170 countries, revenues comes from different places in 2013, with the Americas representing about 44%, EMEA (Europe, Middle East and Africa) 32%, and Asia Pacific 24%.
Although IBM's revenue from the BRIC countries (Brazil, Russia, India and China) decreased 5% in 2013, emerging markets will present a significant challenge in the following years and are expected to contribute about a third to its total revenue by 2015.
A Cloud Computing Infrastructure Provider
IBM has focused in services and software. For example, the acquisition of Softlayer Technologies helps to offer customers a robust and comprehensive cloud portfolio. With this deal the company expects to reach $7 billion annually in cloud revenue by 2015. Recently, the tech giant has bought two companies to expand its cloud business, Silverpop, a developer of cloud-based marketing software, and cloud-based database software startup Cloudant.
Dividend and Share Repurchases
IBM has a strong balance sheet, good level of cash that allows it to reward current shareholders through higher dividends. During the third quarter, the company raised its quarterly dividend by 16% to $1.1 per share from its earlier payment of $0.95 per share, or $4.40 per share annually from $3.80 per share. According to company´s report, dividends have been paid since 1916 and with a current dividend yield of 2.2%, which is almost quite enough to protect purchasing power. Moreover, over the last 12 years, the company returned $150 billion of free cash flow back to shareholders.
This repurchases has helped the company with its earnings per share by reducing the number of shares in circulation. EPS have decreased by 14.8% from $2.7 to $2.3 in the most recent quarter compared to the same quarter one year ago.
Return on Equity
A special mention deserves the ROE. The ratio has improved by 10% when compared to the same quarter one year prior. Let´s compare the current ratio with the peer group in the next table:
As we can see, the firm has a higher ROE than the entire peer group.
Top Three Hedge Funds
Hedge funds have been filing their form 13-F for the 03/31/2014 reporting period, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC).
The top three hedge funds holding IBM on 03/31/2014 were Berkshire Hathaway Inc., Vanguard Group Inc. and State Street Corp.
As outlined in the article, IBM focuses on markets where companies in the telecommunications, oil and gas and banking sector increased demand for IBM services and technical support. Additionally, the firm is focusing on higher value added segments. We must mention to pay attention to revenue growth. Total revenue fell 4% to $22.5 billion in the first quarter, below analysts' average estimate of $22.91 billion and it was the lowest since the first quarter of 2009. We believe that the company is trimming its least profitable business units, like the hardware unit, and shifting efforts and resources to more profitable areas such as cloud computing.
Hedge fund gurus like Warren Buffett (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ken Griffin, Jim Simons (Trades, Portfolio), Brian Taylor and Prem Watsa (Trades, Portfolio) have taken long positions in the first quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
Guru Discussed: Jeremy Grantham: Current Portfolio, Stock Picks
Joel Greenblatt: Current Portfolio, Stock Picks
Stocks Discussed: IBM, ORCL, ACN, MSFT, HPQ,