To The Moon

When I reviewed the 2022 technology stocks, I found an interesting phenomenon: among all these technology stocks in 2022, $IBM(IBM)$ is the company that can keep its green.

Among all tech companies which are valued at more than $50 billion,only two had positive returns in 2022. One is $VMware(VMW)$,because it agreed in May to pay $61 billion for$Broadcom(AVGO)$ Acquisition.The other one is$IBM(IBM)$.IBM rose 5.41% in 2022. It is the king of all major technology stocks.Reasons IBM Has Positive Earnings in 20221.

Business model

IBM is currently in a period of reshaping its business model, it now adopts a "platform approach". Cloud service is one of the main services. The cloud service market is composed of AWS,$Azure Power Global Ltd(AZRE)$and $Alphabet(GOOG)$.IBM's market share in the second quarter of 2022 was only 4%.

But instead of competing with them, IBM chose to partner with these large cloud companies.Arvind, the new CEO of IBM, said last year,IBM's business with Microsoft is worth more than $1 billion, and its business with Amazon is even larger.In 2019, IBM acquired Red Hat for $34 billion$Red Hat(RHT)$. This acquisition gives IBM access to the large open source software community.

Red Hat recently announced a relationship with$Dell Technologies Inc.(DELL)$. According to research by Gartner, 90% of organizations are expected to run containerized applications by 2026. 

In addition, IBM also uses its trusted brand to provide consulting in digital transformation. IBM positions itself as an expert in artificial intelligence and blockchain . The artificial intelligence industry is expected to grow rapidly at a compound annual growth rate of 20.1%, worth $1.39 trillion by 2029.

IBM also made technological progress in 2022 with the introduction of the Z16 mainframe computer. Z16 is designed to enable customers to analyze real-time transactions on a large scale.2. Financial situation is relatively good

According to IBM's latest third-quarter financial report, the total revenue in the third quarter was US $14.107 billion, exceeding analysts' expectations of US $557 million and increasing by 6.62% year-on-year. 

Compared with previous quarters, its revenue growth rate slowed down, which was 9.82% in the second quarter of 2022. The main reason for the slowdown in growth was the continuous appreciation of the US dollar.

For the market segment, software revenue increased by 14% year-on-year to reach 5.8 billion US dollars. Among them, Red Hat's revenue contribution increased by 18% year-on-year, which also made IBM's transaction scale increase continuously.Sales of data and artificial intelligence products rose 4% year-over-year. IBM has been a pioneer in the data quality industry, where there is huge potential for growth. The big data industry is projected to grow at a solid CAGR of 11% to reach $272.4 billion by 2026.In the third quarter,IBM's non-GAAP earnings per share was $1.81, $0.01 higher than analysts expected. Operating profit margin increased by 180 basis points, which was due to the shift to software products with higher profit margin.

IBM reported free cash flow of $4.1 billion, up $900 million year-over-year. The company continues to implement a strong acquisition growth strategy and has invested more than $1 billion in acquisitions over the past three quarters, including acquisitions of consulting firms such as Octo and Dialexa.

3. Low risk and high dividend

The oil price continued to soar due to the conflict between Russia and Ukraine, and the Federal Reserve continued to raise interest rates to cope with high inflation, which made the growth stocks represented by technology stocks fall continuously this year.$Meta Platforms, Inc.(META)$$Apple(AAPL)$$Alphabet(GOOG)$$Microsoft(MSFT)$In this case, investors prefer defensive companies with low beta and stable earnings.

According to Yahoo Finance, IBM has a beta of 0.89, which is less volatile than the overall market. Companies with less volatility are obviously more popular with investors in unstable market conditions.

IBM's consistently high dividend payouts are also a big reason for its defensiveness, which can offset the loss of capital to some extent in a declining market. IBM 2022 has an annual dividend yield of 4.71%

Crawford Investment Counsel focuses on income and dividends. The company studied IBM in 2016, and equity analyst Aaron Foresman believes it is too early to make a major investment, but his view changed after IBM acquired Red Hat for $34 billion in 2019.

At present, the company has increased its IBM stake from US $2 million to US $30 million, and continued to increase its holdings until its shareholding reached US $109 million.Analysts at Bernstein Research say IBM's movements may depend solely on economic conditions rather than any major catalyst within the company.They think IBM's share price"Well above its historical range", giving the stock a "hold" rating.

"Considering IBM's defensive characteristics and historical performance, we believe that if the market continues to be under pressure, IBM's performance may be very good, and if it enters the recovery period, IBM's performance may lag behind major stock indexes."

Ben Alemo of Seeking alpha forecasts IBM's revenue growth of 6% next year, in line with this year's growth. However, in the second to fifth years, he predicted that the annual income growth rate would be 9%. In addition, he forecasts a target pre-tax operating profit margin of 23% over 10 years, which is the average level of the software industry. Based on the above factors, he thinks that IBM's share price should be $164, and the price is 142.6 now.Dear Friends, Do you prefer growth stocks or defensive stocks in 2023? Welcome to share with you in the comments ~