Warren Buffett has always avoided high tech stocks like Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC).
He had an opportunity to buy Intel at a very low price. He is also very close friends and a bridge partner with Bill Gates, the founder of Microsoft. He did not understand the high technology industry and was uncomfortable investing when he could not be settled as to the future of a company, even when the sector was booming. That did change, however. But when Buffett finally did buy shares of a high tech company, it was IBM (NYSE: IBM), not Intel or Microsoft.
IBM was not only the worst performing stock on the Dow Jones Industrial Average for 2013, it was the only one to decline in value in the bull market year.
But IBM is up for the last week, month, and quarter of market action. Its forward price-to-earnings ratio is 10.40, which is very alluring. Growth investors should like that the projected earnings per for the next five year are higher than both the present annual rate and quarterly rate. It addition, IBM has stellar returns,making it even more compelling as a growth stock.
Income investors should like the dividend income rate of just over 2 percent.
That is better than the average for a member of the Standard & Poor’s 500 Index. In addition, IBM has a history of growing its dividend growth. For long term investors like Warren Buffett, that makes IBM an appealing dividend stock.
IBM is now trading for around $187.25.
The mean analyst target price over the next year of market action is $193.06. Stifel issued a buy recommendation for IBM in October 2013 with a target price of $237 a share. Combined with the solid dividend, there should be a rewarding total return over the long term for the shareholders of IBM.