Play IBM Revenue Growth After 23 Quarters With These ETFs

The fourth quarter of 2017 can be seen as a historic forInternational Business Machines Corporation IBM, which returned to revenue growth for the first time in 23 quarters.  The company’s adjusted earnings per share came in at $ 5.18 (up 3% year over year), beating the Zacks Consensus Estimate of $ 5.17.

The company saw revenue figures of $ 22.54 billion, again surpassing our consensus estimate of $ 21.96 billion. Revenues grew 4% in Q4 and 1% adjusted for currency (read: Play IBM's Turnaround Story With These ETFs).

Fourth-quarter revenues for strategic imperatives grew 17% (up 14% adjusting for currency). The figure expanded at a double-digit rate and makes up about 46% of total revenues. Clouding computing and blockchain leadership helped IBM’s revenue greatly.          

Downbeat Outlook

IBM expects adjusted earnings per share of at least $ 13.80 in 2018. Analysts were expecting $ 13.92 in earnings per share, excluding certain items, for the full year, according to Thomson Reuters. The Zacks Consensus Estimate for 2018 was $ 13.86, with 10 analysts providing estimates — the highest being $ 14.08 and the lowest being $ 13.60.

The company’s annual effective tax rate is projected to be 16%, plus or minus 2%, including the tax reform. That tax rate will be up from 12% in 2017.  Such downbeat guidance punished the stock, which lost about 3.4% after hours on Jan 18, 2018, despite reporting revenue growth.

Should You buy the Dip?

The company’s progress on emerging technologies like cloud computing and artificial intelligence positions it better for the long term.  “In the fourth quarter IBM acquired consulting agency Vivant Digital, settled a patent lawsuit with Priceline.com and said Daimler AG, JPMorgan Chase and Samsung are collaborating with the company on quantum computing technology.” IBM also plans a blockchain joint venture with shipping company Maersk to digitalize the global shipping industry (read: 3 Factors that Defend IBM ETFs From Berkshire's Bashing).

Decent Zacks Rank

The stock has a Zacks Rank #3 (Hold) and a VGM (Value, Growth, Momentum) Score of B. Its Zacks Industry Rank is in the top 35%.

ETFs to Watch

If you have faith in IBM’s turnaround story and believe that it can be a good bet for the long term on digitalization and a host of joint ventures, ETFs with the highest allocation to this tech giant should be your focus. This is especially true given that the basket approach minimizes stock-specific risks (see: all the Technology ETFs here):

ETFs in Focus

First Trust NASDAQ Technology Dividend Index Fund TDIV

This fund provides exposure to dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $ 879.8 million in its asset base. It charges 50 bps in annual fees and holds about 94 securities in its basket. Of these firms, IBM takes the second spot, making up roughly 8.25% of the assets. In terms of industrial exposure, the fund allocates about 29.7% of the portfolio in semiconductor and semiconductor equipment, followed by software (14.6%), technology hardware, storage & peripherals (13%), and diversified telecom services (11.4%).

Guggenheim Dow Jones Industrial Average Dividend ETF DJD

This ETF offers exposure to high-yielding companies included in the Dow Jones Industrial Average by tracking the Dow Jones Industrial Average Yield Weighted. It holds 30 stocks in it basket, with IBM occupying the second position holding 5.4%. Information technology, industrials, healthcare, and consumer staples are the top four sectors. DJD has been able to manage assets worth $ 16.0 million. It charges 30 bps in annual fees.
 
SPDR Dow Jones Industrial Average ETF DIA

This fund follows the Dow Jones Industrial Average, providing exposure to the 30 blue-chip U.S. stocks. IBM occupies the ninth position in the basket with 4.4% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with a double-digit exposure each. DIA is one of the largest and most-popular ETF in the space with AUM of $ 24.2 billion. It charges 17 bps in annual fees from investors (read: Market at New Highs: Mega Cap ETFs & Stocks On A Roll).

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International Business Machines Corporation (IBM): Free Stock Analysis Report
 
SPDR-DJ IND AVG (DIA): ETF Research Reports
 
FT-NDQ TECH DIF (TDIV): ETF Research Reports
 
GUGG-DJIA DVD (DJD): ETF Research Reports
 
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