For years International Business Machines Corp. (NYSE: IBM) has remained a technology bellwether, as well as a top stock to own in most portfolios. The brilliant move that took it out of the personal computer business and focused on the core services business pushed the stock higher and higher. Unfortunately, business has stalled for Big Blue, and back-to-back quarters of dismal performance are starting to make even the most stalwart investors impatient.
IBM’s fourth-quarter fiscal 2014 revenue again fell below expectations, with the Systems and Technology segment driving most of the shortfall. Emerging markets also remained soft. Software was the only bright spot, with in-line revenue following a big third-quarter miss, though management was positive on the core services business heading in to 2014.
In the dog-eat-dog world on Wall Street, one company’s struggle can provide opportunity for other companies. In a new research report, the technology research team at Baird highlight top stocks to buy that may see a large benefit from the struggles at IBM.
Accenture PLC (NYSE: ACN) is a company that Baird sees benefiting from the IBM missteps. The firm sees the company gaining in the global business services arena. The company continues to focus on expanding areas like cloud, mobile and so on and should see a similar mix benefit over time. The Baird team estimates that digital, mobile and analytics represents about 12% of Accenture’s revenue. Grabbing more of IBM’s share could help drive the stock price. Investors are paid a 2.2% dividend. The Baird price target for the stock is placed at $90. The Thomson/First Call estimate is $83.70. Accenture closed Wednesday at $85.40.
Citrix Systems Inc. (NASDAQ: CTXS) is a top-rated stock to buy at almost every Wall Street firm that we cover. IBM’s Software unit missed bad in the third quarter, and Citrix is poised to grab business in this arena. While IBM’s Financial Services revenue declines also worsened slightly during the fourth quarter, it had the best relative performance as compared to the other verticals. The Baird analysts believe this also bodes well for Citrix, which generates about 20% of revenue from the segment. The Baird price target for this top-rated stock is $75, and the consensus is at $71.66. Citrix closed Wednesday at $61.20.
Informatica Corp. (NASDAQ: INFA) is the world’s number one independent provider of data integration software and is specializing in data masking for security. Gartner analysts wrote in the Data Masking Technology report that, “A growing number of enterprises are taking a strategic approach to adopting data masking,” and that “new use cases in data masking implementation have emerged and are evolving rapidly: DDM [dynamic data masking] and SDM [static data masking] for big data platforms, and the use of data masking in cloud access security brokers to address data security in the cloud platform.” Continued strength in business analytics bodes well for the company as it goes after IBM business. The Baird price target for the stock is $47, and the consensus is posted at $45.02. Informatica closed Wednesday at $43.49.
Qlik Technologies Inc. (NASDAQ: QLIK) is a favorite at Baird and was recently upgraded to buy at Jefferies. The company engages in the development, commercialization and implementation of software products and related services for user-driven business intelligence that enables customers to make business decisions primarily in the Americas, Europe, the Asia-Pacific region and Africa. It provides the QlikView Business Discovery platform, which helps people create and share insights and analysis in groups and across organizations. Its strength in business analytics and financial services may bode well after the IBM issues. The Baird price target for the stock is $33, and the consensus number is at $32.27. The stock closed Wednesday at $28.60.
Needless to say, current shortfalls are not the end of the venerable IBM. One thing is for sure, turning around such a huge ship takes time. The longer it takes for the company to get its growth trajectory and business models back on course, the more opportunity that is provided for companies competing for the same dollars. Buying any of these top names might provide investors with immediate and long-term gains.
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