The Simple Reason I'm Still Holding IBM Stock

If there's one thing IBM  (NYSE: IBM  )  stock investors can count on, it's innovation. Fool contributor Tim Beyers explains the importance of Big Blue's labs in the following video.

While there's no disputing that IBM's core business is selling hardware, software, and accompanying services, R&D runs differently at Big Blue than it does elsewhere. The company's labs help introduce patent-worthy scientific breakthroughs that result in more than $1 billion a year in royalty income.

And there's more on the way. IBM set a new record with 6,809 patents issued in 2013, its 21st consecutive year atop the industry charts in terms of awarded patents. Each new filing offers an opportunity to generate additional royalty income at a near 100% gross margin.

The latest join the ranks? Two new polymers -- dubbed "Titan" and "Hydro" -- that research chemist Jeannette Garcia discovered when accidentally omitting a step in what should have been a routine experiment, The New York Times reports. The results were anything but. Garcia's new polymers are strong, light, and self-healing for potential use in high-temperature and industrial environments. Long-term applications could include advanced manufacturing or even aeronautics. (Fuselage and wing construction for lightweight commercial airliners, for example.)

How should investors think about this? With a sense of reassurance, Tim says. IBM's stock chart hasn't been much to look at over the past two years but the core elements of the business -- i.e., a service company with underlying investments in game-changing breakthroughs -- are still intact.

Now it's your turn to weigh in. Do you believe IBM's blue-sky R&D efforts are critical to the future of the business? Why or why not? Please watch the video to get the full story and then leave a comment to let us know your take, including whether you would buy, sell, or short IBM stock at current prices.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2014, at 4:55 PM, investsmart wrote:

    I agree that IBM is a leader on innovation and admire their leadership on R&D.

    But the problem is another thing, 1b in royalties won't solve IBM problems, 2015 is almost here and in order to achieve the promises made in the past they're growing their debt in order to perform buybacks and selling facilities, early retiring/laying off employees, some responsible for these types of innovation.

    All of this in a period that technology is changing, companies investments on IT are smaller, cloud is already a commodity, hardware is becoming another and services has a pressure from smaller companies, only rest software, today software has ~25% revenue in the total pie, IBM strategy is CAMS (cloud, analytics, mobile and security) all of these areas already has an leader and it's not IBM.

    It wasn't R&D that solved IBM problems in 1990 and won't be again...

  • Report this Comment On May 20, 2014, at 5:54 PM, 092326 wrote:

    IBM is no longer the growth vehicle that it once was but it remains an innovative, well managed, operation with the right combination of divisions that will keep it competitive for years to come.

  • Report this Comment On May 20, 2014, at 8:28 PM, tmc211run wrote:

    IBM is not well managed. In fact they have lost customer focus and only know how to eliminate cost by laying off. This CEO will not take IBM back to past glory.

  • Report this Comment On May 20, 2014, at 10:20 PM, MinnesotaMBA wrote:

    As a former IBM employee who holds 2 patents (and a 3rd on the way) I can tell you that IBM is going straight down the toilet. Real innovation has been replaced by junk patents and cost cutting. Right now the company is sacrificing employee and customer needs to benefit shareholders, but in the next couple of years the executives will be exposed. I'm sorry to see such a great company in decline thanks to the poor leadership of Sam Palmisano and Ginny Rometty.

  • Report this Comment On May 21, 2014, at 5:46 AM, LIVABJORN wrote:

    When Lou Gerstner came onbord in 1991-2 the former management team had a plan to split up IBM in small companies to match the perceived marked with many nimble competitors.

    After three months in the CEO chair he realized that it would be devastating to IBM to follow that plan. IBM's strength lyed in it's size and ability to do groundbraking research. In his earlier jobs as CEO in large companies he had been a customer to IBM and the reason for him to choose IBM was it's size and geographical reach. - Whatever it-problems and challenges he might experience, IBM was able to cope and come up with viable suggestions. That would not have been possible if IBM had split up in 10+ small companies

  • Report this Comment On May 21, 2014, at 6:23 AM, Mathman6577 wrote:

    KO seems to be going down the same path as IBM. Is that a bad thing?

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