IBM and Google Need to Resurrect Shares in 2015; Here’s HowBy twocents@thestreet (Richard Saintvilus) NEW YORK (TheStreet) -- Not every stock has done well during the current Santa Claus rally, and not every contrarian play is worth the investment. Cases in point: IBM and Google . These former technology powerhouses will need to doBy twocents@thestreet (Richard Saintvilus) NEW YORK (TheStreet) -- Not every stock has done well during the current Santa Claus rally, and not every contrarian play is worth the investment. Cases in point: IBM and Google . These former technology powerhouses will need to do many things to resurrect their shares next year. Must Read: Warren Buffetts Top 10 Dividend Stocks If you like contrarian plays, one only needs to look at BlackBerry or Apple as examples of companies whose subpar 2013 performance turned around to make investors a lot of money this year. BlackBerry is up nearly48% for the year to date while Apple is up 38% at a time when the Dow Jones Industrial Average is up 9.1% and the S&P 500 is up 13%. So why is IBM down 31% and Google off 3.4% for the same period? First, IBM. IBM lost 3% of its value in 2013. While the company does pay a strong 2.7% yield, Big Blue has not fully established what it wants to be or how it plans to address the shift in corporate IT. IBM can still boast about its profits, which have grown 4% over the past year. Thats still impressive, given IBMs $160 billion market cap. The problem -- Wall Street no longer cares about that. Even though analysts project IBM to grow earnings per share at a rate of 8% in the next five years, the focus remains on the revenue side, which has declined 4.55% in the last year, leading to the stock declining of more than 16% over the past three years. So whats going to change in 2015? For these shares to rebound, IBM must figure out a way to become more relevant in the cloud. The industry is moving away from on-premise systems to cloud-based systems. Companies no longer want to manage their own servers on site. Instead, corporations are embracing the type of on-demand cloud service offered by Salesforce and Workday , up 11% and 2.4%, respectively -- a platform known as SaaS (software-as-a-service). IBM should model itself after Hewlett-Packard , which reinvented itself, prompting a 46% rise in shares for the year. IBM must address markets like platform-as-a-service (PaaS) and OpenStack, the new frontier in public and private clouds. Buying a company like Red Hat would immediately restore IBMs credibility, making it a threat to Oracle and Microsoft . Meanwhile, as noted Google shares are down on the year even though the stock has been one of the markets best performers, gaining close to 70% over the past three years. Apples resurgence and the market share gains in mobile has come at the expense of Googles Android dominance. Samsungs decline hasnt helped Google either. Samsung is Googles largest Android partner. But the biggest thing hurting Google in 2014 is how quickly Facebook has climbed in online advertising. Research firm eMarketer ranks Google as the worldwide leader in online advertising with a 31% share, but Facebooks jump from 6% to 8% has been enough to cause analysts to worry. The social media giant is also gaining ground on Google in mobile, adding 1.5 percentage points from last years share of 17% (now 18.5%). Googles mobile share, meanwhile, dropped to 40.5% this year from around 47% in 2013. So whats going to change in 2015? Google made strategic acquisitions this year to ensure its growth for years to come. Spending $3.2 billion for Nest, a company that specializes in connected devices, was one example. Google then picked off Titan Aerospace, a maker of drones. If these acquisitions can boost Googles 2015 revenue, the stock should rebound. While analysts focus on what grounds Google may lose to Facebook on advertising, investors shouldnt lose sight of the potential Google is gaining by diversifying its business. With shares trading at around $543, expect Google to reach $620 in the next 12 to 18 months, suggesting gains of 15%. Must Read: JPMorgans 6 Top Biotech and Pharmaceuticals Stocks to Buy in 2015 Follow @Richard_WSPB TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation: We rate INTL BUSINESS MACHINES CORP (IBM) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The companys strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and a generally disappointing performance in the stock itself. You can view the full analysis from the report here: IBM Ratings Report Click to view a price quote on IBM. Click to research the Computer Software & Services industry. ift.tt/1gB4pon
Posted on: Fri, 26 Dec 2014 20:49:32 +0000
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