Why IBM Is One of the ‘Dogs of the Dow’
IBM is one of the “Dogs of the Dow”
Earlier in this series, we learned about IBM’s (IBM) various initiatives to boost revenue growth. Market sentiment improved for IBM in 2016 and its stock rose ~22% in 2016.
Despite double-digit growth in IBM’s stock in 2016, it appears a further increase is possible. It was picked as one of the “Dogs of the Dow” for 2017 by Cornerstone Macro, a boutique investment firm.
According to Barron’s Blog, Cornerstone analyst Carter Braxton Worth stated that “Our pick for 2017 among the 10 Dogs of the Dow of 2016 is IBM.” “The Dow” refers to the price-weighted DJIA (Dow Jones Industrial Average) index. The higher the companies’ stock price, the greater the influence the stock has on the index.
According to MarketWatch, MKM Partners analyst Jonathan Krinsky, stated that “The name that we think has the most potential is IBM,” adding that “while the stock is flat over the last six years, it now appears to be coming out of an inverse head-and-shoulders bottom.”
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IBM stock has underperformed the DJIA
IBM stock’s underperformance of the Dow has worked in its favor. After hitting a six-year low in February 2016, IBM’s stock recovered in 2016. However, if we look at its performance in the last two years, its shares have risen only 3.6%, whereas DJIA has registered an ~11% rise. In the past five years, IBM’s stock has fallen ~10%, compared with a 62% gain for the DJIA.
It is IBM’s underperformance and the improving market sentiment towards its stock that has made it a recommended stock for 2017. Later in this series, we’ll see how its dividend yield played a role in its selection.