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It’s Time for IBM to Move on From CEO Ginni Rometty

Will Ashworth

I wrote two supportive articles in December about IBM (NYSE:IBM) and IBM stock, so it’s fair to say I’m a believer in its future, which puts me at odds with 18 analysts rating it a hold or sell.

I’m a big boy; I can take the heat. But here’s the thing.

As much as I see the glass half-full at IBM, I’ve got a nagging belief that current CEO Ginni Rometty needs to move up to Executive Chairman and fill the CEO position with someone who isn’t afraid to make big decisions and then stick with them. 

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At this moment in time when IBM is making big strides in the cloud, analytics, artificial intelligence and blockchain, it needs a leader who’s not afraid to bet the farm on these segments of its business.

How Long Has It Had Watson?

IBM first started developing the supercomputer in 2007 and unveiled it in 2010, and then Watson crushed former Jeopardy champions Ken Jennings and Brad Rutter in February 2011.

Almost seven years have passed since then, and while it is making progress in the healthcare field and other sectors of the economy, Watson needs to take a more permanent place in the IBM business plan.

Ginni Rometty’s pulling down more than $33 million in annual compensation and remains one of the highest-paid CEOs in the S&P 500. It’s just not acceptable that she’s earning more than many of her peers whose stocks have doubled or tripled while she’s been in the top job.

An Impossible Task

Yes, Rometty was given a nearly impossible task when she was promoted to CEO in January 2012, but that’s life in the big city.

With a large paycheck comes a big responsibility to deliver for shareholders. On that front, she’s been an abysmal failure.

To illustrate, I went back to January 2012 and found the lowest share price for IBM stock in each of the last six years through the end of 2017.

IBM Stock – Lowest Annual Price 2012-2017

Year

Share Price

2012

$177.35

2013

$172.57

2014

$150.50

2015

$131.65

2016

$116.90

2017

$147.42

Average

$149.40

Source: Yahoo Finance

Let’s assume that you bought 100 shares in all six years at the lowest share price on the right. You would have paid $89,639 for those shares, and as of Jan. 4, they would be worth $97,020 for an annualized total return of 1.3%.

Over the past five years, the S&P 500 has delivered 12 times the performance relative to IBM stock. It’s easy to see why Warren Buffett gave up hope.

However, it’s always darkest before the dawn.

If you’ve held IBM stock the past six years with little to show for it, I won’t dare suggest you hold another six to get your money back. But I would at least sit tight for 2-3 quarters to see if IBM can keep the momentum it gained in 2017.

Growth Gaining Traction

InvestorPlace contributor Vince Martin, who does an excellent job covering tech stocks, sees hope for IBM as a result of some of its newer initiatives. I couldn’t agree more.

Martin wrote about this very subject Jan. 5.

Mostly, he argues that IBM in a worst-case scenario provides a desirable dividend yield of nearly 4%. However, in the best-case scenario, he sees the company reigniting earnings growth thanks to successful initiatives like blockchain which could drive its stock to $200 and beyond.

That’s not an impossible endpoint for IBM.

A Big Catalyst

Ginni Rometty has put in place a turnaround plan that’s finally taking hold. At this juncture, stepping out of the CEO chair could be just the catalyst to deliver a $200 share price regardless of IBM’s earnings growth.

And, if you get the right leader in place — entrepreneurial yet patient — earnings will follow its share price higher.

Ginni Rometty’s reign has been expensive for everyone but her. It’s time she sucks up her pride and moves into the Executive Chairman position and lets somebody else run with the football. 

That, more than anything, will help cure what ails IBM stock.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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