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Apple is not the U.S. stock that is currently recommended by the greatest number of newsletter editors.
Believe it or not, it’s IBM IBM, -0.37% , which for years has represented in many investors’ eyes the kind of old, stodgy and washed-up company that nimble firms like Apple AAPL, +0.38% run circles around. But a surprisingly large number of market-beating newsletters editors I monitor think that view is unfair.
In essence, they argue that IBM is a growth company that trades like a value stock.
Many of the newsletter editors credit IBM’s “Watson” for much of the company’s growth potential. Gray Cardiff, editor of the Sound Advice newsletter, describes Watson as IBM’s artificial intelligence “super computer that can ‘think’ like a human.”
Notes Cardiff: “Watson cognitively scans a world of data and applies relevant information to what it learns about a company’s business and systems to create new revenue streams, reduce expenses, and make existing operations more efficient. We have only begun to see and imagine the uses of artificial intelligence. IBM is the leader in that field and on a solid path to provide a growing abundance of opportunities in the months and years ahead.”
John Buckingham, editor of the Prudent Speculator newsletter, adds that “the growth opportunity for the company’s Strategic Imperatives is high. Watson continues to impress with deployments in Health Care, Internet of Things and Financial Services.”
Despite such optimism, IBM stock in out of favor and trades solidly in the value camp. Its price/earnings ratio based on trailing 12 months’ earnings is 12.6, compared to almost double that for the S&P 500 SPX, +0.16% . IBM’s P/E based on estimated earnings for the next 12 months is even lower, at 11.1.
The newsletter editors also are impressed with IBM’s high dividend yield — 3.9% currently — that provides investors with a nice cushion during the time those editors think it could take for the rest of the market to discover the stock’s potential. Also impressive to them is that, with IBM’s recent 10-cent increase in its quarterly dividend, the company has now raised its dividend in each of the last 22 years.
Kelley Wright, editor of Investment Quality Trends, bases his recommendation of IBM on its dividend yield. In fact, he calculates that the stock wouldn’t become overvalued until it’s trading at $462 — which represents more than a triple from where IBM is trading today.
Moreover, each of these advisers recommending IBM has a market-beating track record. John Buckingham’s Prudent Speculator, for example, has beaten the broad stock market by 1.7 percentage points annualized over the past 30 years. Though my performance monitoring service has been tracking Gray Cardiff’s and Kelley Wright’s newsletters for less time, they also have beaten the market: Wright’s market-topping margin over the past 20 years annualized is 2.6 percentage points, while Cardiff’s over the past 15 years is 1.7 points.
For the record, I should emphasize that the newsletter editors I monitor don’t actively dislike Apple. Many are recommending it also. They just like IBM more.
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