International Business Machines Corp. (IBM), Accenture Plc (ACN): This Old Dog Can Learn New Tricks

The bottom line

Of these three companies, International Business Machines Corp. (NYSE:IBM) seems to be the only one that has made the effort to modernize in a push to stay competitive. It’s Five Year Plan of investment in fast-growing markets like cloud software, $3.6 billion in share buybacks, cutting jobs and costs in a shrinking hardware market, and a $1 billion restructuring (at little cost to stockholders) is so far proving to be a success. The ultimate success will be hitting the target of 50% of profits coming from software, which is more forward-looking than sticking to hardware sales, which made up 14% of profits in 2012, down from 35% of profits in 2000. Dividends have increased to $0.95 per share last quarter, up from $0.55 per share in 2010, so investors are reaping the rewards of International Business Machines Corp. (NYSE:IBM)’s “shareholder first” reboot strategy.

With a forward P/E of 10.7 and a P/B of 12, International Business Machines Corp. (NYSE:IBM) represents a pretty cheap buy that has a lot of room for growth. Thanks to a profit margin of over 15% and operating margin of over 20%, the company has some breathing room to implement its five-year plan at little damage to the stock price or to investor’s portfolios. Accenture Plc (NYSE:ACN), meanwhile, has a higher P/E at 16.6 and a lower P/B ratio at 8.8, easily making it a less worthwhile investment than IBM, aside from a higher annual dividend yield.

This will encourage investors to keep International Business Machines Corp. (NYSE:IBM) in their portfolios, and gives assurance that this old dog can still learn new tricks.

John McKenna has no position in any stocks mentioned. The Motley Fool recommends Accenture. The Motley Fool owns shares of International Business Machines (NYSE:IBM). and Oracle..

The article This Old Dog Can Learn New Tricks originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.