"IBM (NYSE: ) has transformed itself into a dynamic consulting and computer services company that's leading the charge to help companies streamline efficiency and cut costs," says Ian Wyatt.
In his Top Stock Insights he explains, "And most investors are unaware of the change. In our opinion, that's why IBM trades with such an attractive valuation." Here's his review.
"The transformation of IBM means there should be some solid profits for investors who understand the changing face of business. It started in 2002. IBM bought out PricewaterhouseCoopers Consulting for $3.5 billion.
"So in addition to computer installation and software writing, IBM now offers companies complete efficiency enhancing services.
"For instance, IBM writes software programs that use data from motion and temperature sensors to help railroads get their trains to run on time. And IBM is helping utilities cut electric use with the so-called Smart Grid.
"Norwegian oil company Statoil-Hydro paid IBM $21 million to build a computer system that could take well-hole pressure readings its deep-sea platforms and optimize the pumping rate.
"Statoil-Hydro believes this will increase its oil output by 15%, which represents $1.5 billion in added revenues a year.
"So successful was this program, Statoil rewarded IBM with a 5-year support contract for approximately $100 million for software and computers. Amtrak and American Express have recently signed similar IT services deals with IBM.
"IBM recently signed a deal with Juniper Networks ( ) to resell Juniper's routers and switches. That means IBM is leveraging its consulting expertise to go right after one of technology's biggest, most important players, Cisco. IBM has a similar deals with Brocade, VMWare and others.
"IBM has launched a business analytics system that will use data to not only react quickly to events, but also to anticipate them.
"For instance, IBM has developed a data analyzing program for Geisinger Health Systems that can predict whether one of its 2.3 million patients will develop heart failure in the next 2 years with an 80% accuracy rate.
"That allows Geisinger to work with the patient on changes that could help prevent heart failure from occurring, thus saving the firm money by applying resources to less costly prevention and not on high cost post-event efforts.
"Blue Cross and Blue Shield and retail store Dillard's use a similar system to help streamline their businesses and become more efficient.
"IBM is also getting into 'cloud computing.' Cloud computing sounds, well, silly. But it has the potential to save businesses money and undercut software companies like Microsoft.
"IBM is currently hosting a cloud computing datacenter in the Chinese city of Wuxi. Local software vendors are invited to use the IBM datacenter to push bandwidth and business applications to users in the city.
"Companies save money because they can access services on an as-needed basis. IBM will take a cut of vendors' revenues.
"And finally, IBM is consulting with the U.S. government on a range of efficiency-enhancing initiatives, like the smart grid.
"IBM is also talking to governments around the world, showing them how technology can help improve everything from roads and water systems to the environment and health care.
"All in all, IBM fits very neatly into our long-term investment strategy. And because most investors may not be fully aware of IBM's transformation, we feel there is significant upside for the stock price. As such, we are adding the stock to our model portfolio."
