Markets

Lessons from IBM's Earnings: 4 Growth Picks - Analyst Blog

A generic image of a pen, a calculator and papers
Credit: Shutterstock photo

Second-quarter results from International Business Machines Corporation IBM came in after the market closed on Monday. While earnings looked impressive, revenues were underwhelming. This is in keeping with a theme that has developed over 12 consecutive quarters. Important lessons are emerging from this report which underlines prevailing trends in the technology domain.

Revenue Numbers Disappoint

The going has been tough for many corporations in the technology arena especially for those with ties to hardware. Slowing demand for Personal Computers (PCs) has hurt sales and profits. IBM has also suffered on this count. The firm posted revenues of $20.81 billion, compared to the revenue estimate of $21.02 billion.

However, the tech giant did manage to beat on earnings. The company posted EPS of $3.84, exceeding the Zacks Consensus Estimate of $3.80. Weakness on the revenue front is possibly a result of the growing importance of cloud computing, cybersecurity and big data. It is not that IBM hasn't launched initiatives in that direction. Cloud Revenue was up more than 70% adjusting for currency and divested businesses. However, IBM seems to have come in too late into this arena.

Microsoft's Triumph

Meanwhile, Microsoft Corporation MSFT is successfully transforming into a company built around a model focusing on mobile and cloud technology. It has been particularly successful in the cloud computing arena with its Azure platform. Microsoft also offers a hybrid cloud solution that enables the integration of existing IT infrastructure with the public cloud.

On the other hand, it has taken concrete steps to grow in the mobile arena. Its Surface tablet is poised to push sales further upward. Meanwhile, market watchers are focused on the launch of Windows 10. Microsoft's promise of a free upgrade will ensure that there is less of a slowdown as everyone gets get ready for the new OS.

Our Choices

The tale of these two companies illustrates the importance of cloud computing, cybersecurity and big data. Below we present four stocks which will gain from these trends. Finding a great growth stock can be a tough task. But thanks to our new style score system we have been able to identify a few growth stocks which have incredible potential in the near term.

Our research shows that stocks with Growth Style Scores of 'A' or 'B' when combined with Zacks Rank # 1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.

NCI, Inc.NCIT is a leading provider of information technology services and solutions to U.S. federal government agencies. The company offers its clients the entire gamut of cybersecurity services.

NCI holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of 'A.' The company has expected earnings growth of 20.6% for the current year.

Equinix, Inc.EQIX is a global provider of network-neutral data centers and Internet exchange services for enterprises, content companies, systems integrators and network service providers.

Apart from a Zacks Rank #1 (Strong Buy), Equinix has a Growth Style Score of 'B.' The company has expected earnings growth of 56.3% for the current year.

VASCO Data Security International Inc.VDSI designs, develops and markets security products and services which manage and secure access to computer systems of corporate and government customers.

VASCO Data Security holds a Zacks Rank #2 (Buy) and has a Growth Style Score of 'A.' The company has expected earnings growth of 10.7% for the current year.

Zix CorporationZIXI is the leading provider of hosted email encryption and e-prescribing services. It also offers bring-your-own device and data loss prevention services.

Apart from a Zacks Rank #2 (Strong Buy), Zix has a Growth Style Score of 'A.' The company has expected earnings growth of 72.2% for the current year.

The contrast that can be drawn between those tech majors who recognized the new focus areas for technology and those who came in late is quite stark. Companies from these new domains are poised to make strong gains in the days ahead. This is why these stocks would make prudent additions to your portfolio.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

INTL BUS MACH (IBM): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

EQUINIX INC (EQIX): Free Stock Analysis Report

NCI INC-CL A (NCIT): Free Stock Analysis Report

VASCO DATA SEC (VDSI): Free Stock Analysis Report

ZIX CORP (ZIXI): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

EQIX IBM MSFT

Other Topics

Earnings Stocks

Latest Markets Videos