October 11, 2011 at 12:16 PM EDT
Old Man IBM Is Showing Up Tech Whippersnappers
IBM has a lot of candles to blow out and a lot of champagne to drink -- this 100-year-old tech company's stock reached an all-time high this week.

IBMAs financial media talk about big tech companies like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) for growth, one name usually gets left out: IBM (NYSE:IBM). Why? Because it doesn’t have pizzazz, it’s not sexy, it’s not hip.

But so what? IBM is positioned to benefit from some of technology’s biggest trends, such as cloud computing and mobile. And investors — who don’t necessarily care about flash — already are taking notice. This week, the stock of century-old IBM hit an all-time high, reaching $186.63. And its market capitalization is now at about $222 billion, making it the No. 2 most valuable tech company in the world.

During the past five years, IBM shares have generated an average annual return of 18.55%. This compares to Microsoft’s (NASDAQ:MSFT) 1.25% and Intel’s (NASDAQ:INTC) 4.26%. Despite being 100 years old, IBM still looks like a scrappy startup.

So why all the success? Perhaps the most critical factor is IBM’s rock-solid management team. Essentially, it understands its strategic goals but also realizes the importance of execution. A great example: In 2005, IBM realized that the PC business was not the right place to be. As a result, the company sold its once-mighty division to Lenovo.

However, IBM’s rivals still are grappling with these types of decisions. Just look at Hewlett-Packard (NYSE:HPQ), whose stock price has been a disaster, yet it still is unclear whether it will unload its PC business.

IBM’s management also has been quite savvy with acquisitions. To this end, the company’s dealmaking has been focused on smaller transactions that provide lots of potential. Often, this means looking at software technologies that can help companies with security, device management and business intelligence.

The strategy has been spot-on, and again, IBM’s rivals still can’t seem to understand it, with many instead pursuing blockbuster deals. This was the case with Microsoft’s $8.5 billion purchase of Skype and HP’s $10 billion acquisition of Autonomy — two transactions that could prove difficult to wring value from.

So in the meantime, IBM continues to move forward and build its powerful platform. For the year, the company will generate about $100 billion in annual revenues and more than $19 billion in profits.

But with its stock price at an all-time high, is IBM still an attractive investment? For the most part, its price-to-earnings ratio is reasonable, at about 15. IBM has a 1.6% dividend yield, and the company should generate huge cash flows. And IBM’s management team has proven capable of finding ways to grow and evolve. So Big Blue still looks like Old Reliable.

Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.


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