After years of financial engineering to prop up its stock earnings, IBM (NYSE:IBM) is starting to find its way back to growth. The company reported revenue growth increasing by 0.1%. Red Hat, a company it acquired recently, reported a 24.5% revenue growth. The upside view is bright, suggesting that value investors should look at IBM again.
IBM forecast FY 2020 earnings of $13.35. A single year of strength is promising but the truly picky investor might want to wait for IBM to demonstrate four to six straight quarters of a rebound. And at a $12.5 billion free cash flow forecast, the stock is a dividend aristocrat for conservative investors. When Netflix (NASDAQ:NFLX) posts FCF of negative $2.5 billion, investors should hold companies that have improving fundamentals.
Risks
IBM’s spike may mirror the July 2019 rally, when the stock peaked at over $150. It went on to fall to the $130 level. At a P/E in the 13 times range and a dividend of ~4.5%, having a small position in IBM stock is a good start. Adding to that core position throughout 2020 will take out the guesswork on timing an entry point.
Your Takeaway
Wait for the buying pressure to end before starting a position in IBM stock.
