Please ensure Javascript is enabled for purposes of website accessibility

Why This Important Dow Stock Jumped 1.5% Today

By Anders Bylund - Apr 10, 2013 at 2:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When IBM makes a big move, the actions of every other Dow stock count for nearly nothing. Today is one of those days thanks, to Big Blue scoring a key analyst upgrade.

IBM (IBM 2.09%) is a giant among Dow stocks. The IT hardware and services veteran accounts for 11% of the Dow Jones Industrial Average (^DJI 1.98%) index by weight, and its price swings always make a big difference to the Dow's daily value changes.

This morning, Big Blue's shares jumped as much as 1.5% on an analyst upgrade. That's enough to add 25 points to the Dow's overall value, thanks to IBM's $211 share price, and a major driver of today's bullish Dow action.

The fuel for this morning's rocket ride came from star analyst Steve Milunovich, formerly of Merrill Lynch but now a managing director at Swiss powerhouse UBS. Milunovich is the kind of rainmaker who can move even blue-chip mega caps like IBM with a stroke of his pen.

In this case, Milunovich boosted IBM from "hold" to "buy" with a $235 price target. That would be a 12% upside to Tuesday's closing prices.

He paints Big Blue as a company in transition, "well positioned" to become a leader in so-called "IT-as-a-service" cloud computing. That's a model where businesses kick their IT operations out as a stand-alone business or divisions, moving a traditional cost center into the realm of flexible and potentially profitable operations.

These IT-focused entities are often powered by advanced cloud-computing solutions and big outsourcing contracts -- two areas where IBM is both huge and growing.

Milunovich calls this a "sound strategy," and it's hard to disagree.

IBM has been heading in this direction for many years now, but the IT-as-a-service trend is primed for massive growth in the near future as the idea enters the mainstream. IBM stock has already crushed its Dow Jones peers over the last five and 10 years, and it's likely to keep on keeping on.

IBM Chart

IBM data by YCharts.

So this man among Dow stock boys looks primed for further gains. Milunovich sees a 12% return for the next year, and I believe that's an appropriate long-term growth rate for the next five years as well. In fact, I just started a long-term outperform CAPScall on IBM to underscore the comprehensive power of IBM's cloud-focused industry muscle.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,880.24 (1.98%) $618.34
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$131.17 (2.09%) $2.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.