I Added Shares To This Troubled Tech Company:
Today I added 9 shares to my position in International Business Machines (IBM). I originally bought this troubled company in September at a per share cost basis of $192.34. The company recently made a major announcement regarding yet another business divestiture and stated its forward earnings goal will no longer be realized. The stock price instantly saw a major decline, and I’ve decided to average down at $163.70 a share with a $6.95 commision for a total cost of $1480.25. My cost basis per share decreases by 7.67% from $192.34 to $177.59. The purchase also adds $39.60 to my annual forward dividends for a new total of $1,314.30.
The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” ~Warren Buffett, Source: – Businessweek, 1999
That’s some great advice there. So how troubled do I find this classic blue chip company that has raised its dividends for 19 years? It’s a very difficult question, and my only answer is that I like what they’re shifting their business to, which is big data, cloud, and engagement in social, mobile, and security areas. They also have a massive collection of patents in each business segment and have been investing heavily in research and development, capital expenditures, and acquisitions to the tune of $133B this last decade. Last year, 65% of their investments were focused on higher margin software and services as they move away from the lower margins of clunky hardware. These investments should continue and even increase because of the company’s three recent major divestitures. IBM has been around inventing and setting trends in technology for over a century, and I’m finding their current prospects too compelling a value to pass up further investment in the company.
This rosy sounding future that I’m hopeful for isn’t a guarantee, and it’s the past I always look at as an investor. I’m not just looking at basic value investing numbers either, because earnings per share, share buybacks, and dividend growth have been well documented and stellar over the last decade through financial engineering. Flat revenues are the most concerning to me as they’ve barely been increasing by under a single percentage point annually over this time and have been declining the since 2011. IBM is such a huge company that it’s very challenging to move that needle, aside from the fact that they’re in the technology sector which is constantly changing. However, this is still a profitable company, and I look at that as a very positive sign during this latest transition. As long as they stay profitable, they’re not going anywhere. Debt seems reasonably managed as well when compared to the amounts other massive blue chip companies have taken on these past years in this low interest rate environment.
To me, shares are far too cheap to ignore at this point. My opinion on that hasn’t changed since I bought them at a much higher price in September. This post is not an attempt at a full analysis or to sell anyone on this company. I’m on a personal journey, and I’m writing this to look back many years down the road and reflect on why I made the decisions I made with the capital I worked so hard to earn. I expect I’ll win some and lose some in the end, but balancing my risk is key. I’ve got a long time horizon and am very comfortable taking on a few high risk/reward companies like my recent purchases of IBM and BP.
Aside from this purchase, I had another few transactions go through today in my no commision Loyal3 account. I expect the remaining purchases to clear on Monday and will update my portfolio and get a post up about it then.
Here are some recent fast graphs of IBM:
What do you think of IBM? How much risk are you willing to take?