[NYSE: IBM]: While the entire market has been weak for the past few months, there are stocks that have been bearish for an entire year. One of them is IBM. In the past 12 months, IBM has lost 26% of its value. In this period, International Business Machines Corporation (IBM) has broken two key support levels, the 200-day moving average at $136.82 and the 50-day moving average at $119.37. This bearish trend raises the question, is IBM a worthy investment?
While chances are that an overall bearish trend in the market may affect IBM in the short-term, this company could be in a buy zone, from a long-term perspective.
One of the factors that make IBM a high potential buy is its growth strategy. IBM is heavily invested in high potential areas that stand to pay off big time, in the future. Some of the areas where IBM is investing heavily include AI, Quantum computing and blockchain. In blockchain, for instance, the company is making major strides in the banking industry with the IBM Blockchain World Wire, which is aimed at cutting transactional costs and times in cross-border payments. This is a high growth market and could play a role in driving up IBM revenues for years to come. The same goes for its forays in AI. Forecasts put the AI implementation market at $105.8 billion by the year 2025. For IBM, this will be a key revenues driver. The company already has 97% of the global banking industry as its clients for computing services. This gives it an edge in the implementation of AI as a core value driver going into the future. In essence, IBM makes for a good bet, based on its investments in these technologies.
The company is also in a good position to absorb shocks related to the increased interest rates by the Federal Reserve. That’s because, from its books, it is clear that the company is generating enough revenues to service its debts with ease. As per its books, IBM has a current ratio of 1.31. This is a healthy ratio and makes IBM a safe bet in spite of rising interest rates. IBM also has a high levered free cash flow of 6.2 billion. This means that the company is not just fully cushioned from rising interest rates, but is also in a position to continue pumping money into high potential areas, to further drive growth.
Another interesting facet to IBM that gives it a high potential for growth is its ability to generate a high profit margin from its products. As per its books, the company has a profit margin of 7.12%. This is an indicator that the company has an edge in its core markets, which enables to charge a premium for its products, while at the same time maintaining its market share.
With all these fundamentals backing it, IBM makes for a high potential buy, in spite of a whole year in the red. It’s low price give it a good risk-reward potential, as a long-term investment.