INTERNATIONAL BUSINESS MACHINES CORP. $205 - New York symbol IBM

INTERNATIONAL BUSINESS MACHINES CORP. $205 (New York symbol IBM, Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $225.5 billion; Price-to-sales ratio: 2.1; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.ibm- .com) has gained 6.8% since we named it last year’s top pick at $192 in our February 2012 issue.

Demand for the company’s software is rising. However, the slow global economy is hurting demand for its mainframe computers and computer services. As a result, IBM’s overall revenue fell 2.3% in 2012, to $104.5 billion from $106.9 billion in 2011.

The company earns higher profits on software and services than from selling computer hardware. That’s the main reason why its earnings rose 8.0% in 2012, to $17.6 billion from $16.3 billion. IBM spent $12.0 billion on share buybacks during the year. Due to fewer shares outstanding, earnings per share rose 13.5%, to $15.25 from $13.44.

IBM’s revenue growth may slow in 2013. However, it expects its earnings to rise by 9.5% this year, to at least $16.70 a share. The stock trades at just 12.3 times that estimate. The $3.40 dividend yields 1.7%.

We feel the stock still gives conservative investors a unique, low-risk way to profit from rising Internet use, particularly in emerging markets.

IBM is a buy.

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