Big Blue's Hidden Value
International Business Machines (IBM) stock has been underperforming lately, with shares dropping by 2% in a month and 22% over the last quarter. Despite this decline, IBM's financials are still attractive, with its stock trading at 3.1 times trailing sales and 15.5 times free cash flow.
One of IBM's key advantages is its stable revenue streams, particularly from mainframes and Linux machines that power the world's banks. While these businesses may be cyclical, they are not going anywhere, making up only 15% of IBM's total revenues.
Meanwhile, IBM's consulting services, including its generative AI consulting business, which is valued at $5.5 billion and growing, provide a steady source of income. The company's focus on low-drama, software-driven AI strategy also sets it apart from competitors.
As shareholders collect a 3% dividend yield while waiting for the market to recover, IBM's stock appears undervalued at 17.3 times forward earnings and 31.8% below June's all-time peak.