IBM CEO Arvind Krishna speaks at an IBM facility in Poughkeepsie, New York, on Oct. 6, 2022. IBM announced $20 billion in investments during President Biden’s visit that will go toward research and development and the manufacturing of semiconductors, mainframe technology, artificial intelligence and quantum computing in the Hudson Valley.
Dana Ullman | Bloomberg | Getty Images
IBM isn’t often described as a hot company. But in a year that saw investors abandon all major tech stocks, Big Blue was in the green.
The Nasdaq is closing out its worst year since 2008. High gas prices, soaring inflation and the Federal Reserve’s steady pace of rate increases have punished growth stocks and favored more mature, less volatile names that are viewed as more recession-resistant.
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Tech names that thrived during the Covid days suffered the most as the economy reopened and consumers returned to many of their old habits.
Among U.S. tech companies valued at $50 billion or more, IBM is one of only two to generate positive returns so far in 2022. As of Friday’s close, the stock was up 6% for the year. The other gainer is VMware, which is up 5% because it agreed in May to be acquired by Broadcom for $61 billion.
While Meta, Amazon and Tesla have been pummeled, investors turned to 111-year-old IBM, betting on its stable earnings, alongside energy stocks such as Exxon Mobil, health-care names including Merck and industrials Northrop Grumman and Lockheed Martin.
IBM beats Big Tech in 2022
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IBM is “trading well above its historical range,” Bernstein Research analysts wrote in a Dec. 20 note to clients. The firm has a hold rating on the stock.
Nobody will mistake IBM for a growth stock. Expansion is consistently in the single digits, and last year the company spun off Kyndryl, its managed infrastructure services business, into a separate publicly traded entity. That cut head count by about 90,000.
But IBM generated $752 million in free cash flow in the latest quarter, up 25% from a year earlier, and paid out $1.5 billion in dividends. Third-quarter earnings and revenue both topped estimates, and the company raised its forecast for the full year.
Crawford Investment Counsel in Atlanta, which focuses on income and dividends, looked at IBM in 2016 and concluded that it would be too early for a major investment, said Aaron Foresman, an equity analyst at the firm.
‘Much closer to their vision’
Crawford’s thesis changed in 2019, after IBM bought faster-growing Red Hat for…
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