For those of us who've been around a while, seeing IBM (NYSE:IBM) atop the IT industry brings back memories. If you haven't been investing for 20 years or more, think of the old IBM this way: Consider Apple's position today, before the "iEverything" company was a glimmer in Steve Jobs' eye, and multiply that by a factor of 10 (Its position in the industry, not market cap). Before IBM's fall from grace in the late 1980s and early 1990s, it was the undisputed leader of technology.
It's taken a while to right the ship, but IBM's commitment to new technologies, and a change in management philosophy that continues with Chairwoman (as of Oct. 1) and CEO Virginia "Ginni" Rometty, is paying off. What separates IBM from others in the industry today is its commitment to aggressively targeting cutting-edge markets, including the cloud and the shift to big data. Others, including Oracle (NYSE:ORCL), Cisco (NASDAQ:CSCO) and, of course, Microsoft (NASDAQ:MSFT), are traveling the same paths; they have to. But IBM is at the forefront, and continues to show others the light.
What's all this about "big data"?
Without diving headlong into geek-speak, big data refers to a situation when data sets, or groups of data, become so large it becomes necessary to find new ways to analyze and use all that information. How big is big data? According to IBM's recent press release, 90% of all the data available around the world today has been collected in the past two years. That's big data.
The problem for business leaders is managing all that information, without succumbing to analysis paralysis. That's where big data solutions come in, and again IBM is ahead of the curve. Its recently announced PureSystems solution allows IBM clients to analyze reams of information in moments, across the entire company. As IBM General Manager Arvind Krishna describes it, "We are on the leading edge of a new era of computing where clients can process vast amounts of information in real time and in ways that can fundamentally transform how business gets done."
The evolution of cloud computing has, in some respects, led to the abundance of information now called big data. Seamlessly transferring data, securely, without the need for expensive hardware and software applications, is what the cloud is all about. Once again, IBM was on board the cloud early, and it continues to drive the technology that Forrester Research predicts will generate $241 billion in annual revenues by 2020.
Many think of the cloud as an inexpensive means of using the Internet to quickly access and utilize technology: And they're right. But a concern of many cloud users is security, or the lack thereof, and using the Internet for access does little to ease those fears. IBM and partner AT&T (NYSE:T) think they have a solution, and they shared specifics in an Oct. 9 news release.
The partnership uses technologies already in place, building on AT&T's existing virtual private networking service, in conjunction with IBM's SmartCloud Enterprise+ solution. The result will be a private network, with a host of cloud-related technologies, that bypasses the Internet altogether.
Others in the IT industry, including the aforementioned Oracle, Cisco and Microsoft, continue providing new and improved cloud and data solutions. What sets IBM apart from its competition, other than perhaps Microsoft, is the depth and breadth of its solutions relative to others. IBM made commitments to new avenues for revenue growth in these areas early, and often.
On a fundamental basis, Cisco and Microsoft stack up well versus IBM. Price-to-sales ratios and return on assets are nearly identical to IBM, and their respective dividend yields of 3% handily top IBM's 1.6%. Oracle is no slouch, either, but it's just now making waves in cloud computing, as discussed in an article late last month. But the cutting-edge solutions at IBM are simply further along and stand to gain more as these burgeoning markets continue to grow.
It's not surprising that analysts are beginning to recognize the potential IBM offers shareholders. Citigroup cited the strength, and diversity, of IBM's multiple business units as the impetus for a recent "buy" rating, and a price target of $250. At its current $208 a share, IBM offers some nice appreciation potential to go along with its 1.6% dividend yield.
IBM announces earnings on Oct. 16, but don't let that prevent you from adding an industry bellwether to your portfolio. IBM has come a long way since the "dark days" and has clearly learned from its mistakes. The once and former leader is back where it belongs, out in front of the pack.
Cisco may not have been as quick to the cloud party as IBM, but it certainly offers some unique opportunities for investors, as you'll see in the Fool's comprehensive premium report. If the IT industry is where your interest lies, click here for a complete breakdown, with ongoing updates, for all things Cisco.
Fool contributor Tim Brugger currently holds no securities positions mentioned in this article. The Motley Fool owns shares of Microsoft, Cisco Systems, and IBM. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft and a synthetic long position in IBM. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.