Following Warrant Buffett’s investing success is anybody’s dream. This very dream turned a nightmare for International Business Machines Corporation IBM lately. The stock lost about 1.2% on Nov 15 as Buffett’s Berkshire Hathaway is shedding position on the stock.
Berkshire used to possess about 81 million shares of IBM at the end of 2016 but cut down its position to about 54 million shares in the first and second quarters of 2017. It further lowered its exposure by about a third to 37 million shares as of Sep 30.
With this, many may want to dump the stock. But before that, it’s better to find out whether IBM shares deserve such opposition. Below we highlight three reasons that defend the stock.
Turnaround Story in Third Quarter
In mid-October, IBMraised investors’ hopes with its third-quarter 2017 results. The world’s largest computer-services provider continued its streak of earnings beat for the twelfth consecutive quarter. Plus, the company beat on revenues, snapping the previous two quarters’ trail of miss (read: Play IBM’s Turnaround Story With These ETFs).
The company also gave cues of sales growth after about “six years of decline.” This suggests that the company’s turnaround story is probably knocking on the door. The company saw revenue figures of $19.15 billion, flat year over year but ahead the consensus estimate of $18.67 billion.
IBM’s cloud revenues surged 20% in the quarter to hit $4.1 billion. Revenues from analytics increased 5%, while mobile sales grew 7%. If these were not enough, IBM’s security sector revenues skyrocketed 51% (read: Why Cloud ETFs Could Soar Ahead).
An Upbeat Analyst Comment
CFRA Research analyst David Holt protected IBM after shares were being hurt by Berkshire’s criticism. Holt indicated that Buffett’s lack of interest in IBM does not “negate the fundamental stabilization of key segments.” The analyst sounded upbeat on underlying success of could computing (increased 20% in Q3), which could gradually result in “incremental margin lift.”
Solid Zacks Rank
The stock has a Zacks Rank #3 (Hold) and a VGM (Value, Growth, Momentum) score of A. It belongs to a Zacks Industry Rank in the top 45% and a Zacks Sector Rank in the top 19%.
ETFs to Watch
If you think the opposite of Warren Buffett and have faith in IBM’s turnaround story, ETFs with the highest allocation to this tech giant should be your focus. This is especially true given that the basket approach minimizes stock-specific risks.
Investors may thus closely monitor the movement in these funds and tap the opportunity whenever it arises (see: all the Technology ETFs here):
First Trust NASDAQ Technology Dividend Index Fund TDIV
This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. Of these firms, IBM makes up roughly 7.7% of the assets.
SPDR Dow Jones Industrial Average ETF DIA
This fund follows the Dow Jones Industrial Average, providing exposure to 30 blue-chip U.S. stocks. IBM occupies the eighth position in the basket with 4.4% share.
Ultra Dividend Revenue ETF RDIV
The fund invests about 5% in the stock.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>