Only two stocks in the Dow Jones Industrial Averages rose in February. They were Walmart and IBM which is based in my hometown of Armonk, New York. IBM was up by an impressive 5%. Last year IBM earned $8.93/share, as revenue rose 4.9%. I will always have special affection for IBM. They paid 45% of our town taxes for over two decades.
So many things I thought I knew were reversed over the past six months so I should be barred from giving further investment advice. I still do not give guarantees, but it would be hard to find a better pick than IBM (perhaps Walmart or ExxonMobil). They are certainly diversified and well ensconced in the plus-$100 billion market cap world. Many of the stock market pundits such as Suze Orman, Jim Cramer, Larry Kudlow and Maria Bartiromo have not been kind to IBM. Furthermore, it was not that long ago that Prudential Bache Securities gave them a don’t buy recommendation. Personally, I own IBM and I am not selling. The reason for my confidence is partially based on the company’s new annual report.
In a letter to shareholders released in conjunction with the annual report, IBM CEO Sam Palmisano says the company is “positioned to lead in the era that lies on the other side of the present crisis. We will not simply ride out the storm. Rather we will take a long-term view, and go on offense.” IBM can do this because they have greater financial resources than any other tech company.
This no retrenchment policy was further emphasized when Palmisano said: “Many companies are reacting to the current global downturn by drastically curtailing spending and investment, even in areas that are important to their future. We are taking a different approach. Of course, we must continue to improve our competitiveness. But while we maintain discipline and prudence in the near term, we also maintain the discipline to plan for the future. We’re not looking back, we’re looking ahead. We’re continuing to invest in R and D, in strategic acquisitions, in growth initiatives–and most importantly, during these difficult times, in our people.”