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7 Reasons is a Buy

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IBM has had a rough few years

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But for long-term investors, there are plenty of reasons to take

advantage of IBM’s stock slump

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1) IBM’s competitive advantage

• Roughly 80% of IBM’s revenue comes from clients deploying hardware, software, and services

• IBM’s ability to deliver integrated solutions is the key to its economic moat

• Industries like banking and retail depend on IBM’s mainframe systems, and switching to a competing solution would be infeasible in most cases

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IBM clients include• More than 90% of the top 100

banks• 9 of the top 10 oil and gas

companies• 80% of the global top 50

retailers• 92 of the top 100 healthcare

organizations• 9 of the top 10 telecom

companies• Hundreds of state and local

governments

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2) An attractive valuation• With 2015 operating EPS expected to be $15.75 to $16.50 per share,

IBM trades at a forward PE ratio of about 10

MSFT QCOM INTC CSCO AAPL IBM0

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Forward PE Ratio

Data from Morningstar

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3) A fast growing cloud• IBM is investing in strategic

imperatives, areas that will drive most of its growth going forward

• IBM generated $8.7 billion from its cloud business over the past twelve months, including hardware, software, and services

• This number grew by 50% year-over-year during IBM’s latest quarter, and IBM is actively making strategic acquisitions

• IBM’s cloud revenue delivered as service has reached an annual run rate of $4.5 billion

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4) A bona fide dividend stock

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0.00

$0.20

$0.40

$0.60

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$1.00

$1.20

$1.40

0.0%

0.5%

1.0%

1.5%

2.0%

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3.5%

IBM Quarterly DividendQuarterly Dividend Dividend Yield

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One of the best big tech dividends

Company Dividend Yield

International Business Machines 3.35%

Microsoft 2.65%

Cisco Systems 2.98%

Apple 1.80%

Intel 3.32%

Qualcomm 3.05%

Dividend yields based on most recently announced dividend payment

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5) A big push into healthcare• One of IBM’s largest opportunities is the

healthcare industry• Watson, IBM’s machine learning system, is being

used by cancer institutes to analyze vast troves of data and provide personalized treatment options

• IBM’s Watson Health unit has entered partnerships with Apple, Medtronic, Johnson & Johnson, and CVS Health

• The $700 million acquisition of Merge Healthcare combines Watson with Merge’s medical imaging management platform

• IBM’s goal is for Watson to become a critical tool for the multi-trillion dollar healthcare industry

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6) Software could raise margins• Over the past decade, software

has grown to represent more than a quarter of IBM’s revenue

• Software carries far higher margins than any other part of IBM’s business

• IBM’s strategic imperatives are about 50% software, and as they grow as a percentage of IBM’s total revenue, profits can rise even without much revenue growth

SegmentQ2 2015

Pre-tax margin

Software 34.4%

Global Technology Services

15.1%

Global Business Services

14.7%

Hardware 11.8%

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7) The potential of OpenPOWER• IBM’s Power servers have been losing

market share to x86-based systems for years

• The OpenPOWER foundation was started in 2013 in an effort to build an ecosystem around IBM’s POWER architecture in the data center

• There are now 147 OpenPOWER members, and over 1,600 popular Linux applications, like MongoDB, Apache Spark, and Hadoop, now run on the POWER architecture

• OpenPOWER has the potential to challenge Intel in the data center

Major OpenPOWER Members

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