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Why IBM Stock Gained 12% in March

By Keith Noonan - Updated Apr 7, 2021 at 8:07AM

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Increased appetite for value stocks has given Big Blue a boost.

What happened

Shares of IBM (IBM -0.91%) jumped 12% in March, according to data from S&P Global Market Intelligence. While many tech stocks saw big sell-offs last month, IBM already traded at low earnings multiples and paid a big dividend, and its stock appears to have benefited from the market's pivot from growth to value. 

IBM Chart

IBM data by YCharts.

While the Nasdaq Composite index climbed roughly 178.5% over the last five years, IBM's share price slumped roughly 10.5% across the same stretch. Investors sold out of growth-dependent technology stocks last month and started pouring into less-risky alternatives, and Big Blue's stock appears to have benefited from the trend. 

A cloud icon on a circuit board.

Image source: Getty Images.

So what

IBM's business has suffered over the last five years, and shareholders have mostly been left waiting for a turnaround that has been slow to materialize. The company has been trying to orchestrate a pivot to cloud computing services, and its $34 billion acquisition of data analytics company Red Hat has been its biggest and boldest move on that front. IBM will also be spinning off its infrastructure services business under the name NewCo.

Execution at IBM has been dismal over the last decade, but some investors see turnaround potential and a bullish case for the stock based on fundamentals. The company's revenue slumped 6% year over year in its last reported quarter, but revenue from Red Hat did grow 19% in the period.

Now what

IBM has traded roughly flat early in April. The stock is now valued at roughly 12 times this year's expected earnings and pays a dividend yielding 4.9%. 

The company expects that it will return to sales growth this year on a currency adjusted basis. It also expects to record adjusted free cash flow between $11 billion and $12 billion this year. That should leave more than enough cash to cover its payout and deliver another year of dividend growth, but Big Blue still has a lot of work to do in order to get the business back on track for long-term growth. 

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