This month we’re buying International Business Machines (NYSE: IBM). After all the scores had been assigned, there were a couple of really attractive options this month. Williams Companies Inc (NYSE: WMB) and Caterpillar (NYSE: CAT) had scores of 10 each, but IBM came out in the top spot with a score of 13. WMB is trading 41% below the 52 week high which is a great sale, but continued uncertainty in the energy sector means it might go lower still so could be a better buy later. It also offers an awesome dividend yield of 7.1% but we managed to resist that
CAT is trading 32% below its 52 week high and the dividend is 4.3%, significantly higher than IBM’s 3.8%, making it another attractive choice.
We don’t always automatically buy the stock with the highest score because there are always other factors, beside the five financials we look at, to consider.
Despite what both WMB and CAT have to offer, we went with IBM for three reasons:
- At a P/E of 9.1 it seems undervalued so offers a better buy for the price. CAT’s P/E is 14.8.
- The EPS is 14.57 compared to CAT’s 4.82 – a big difference – which means IBM is earning more money per share.
- Warren Buffett continues to add to his position in IBM (Berkshire Hathaway now owns over 8% of IBM’s outstanding shares). ‘Nuff said?
Remember, while we favor dividend income, we also want to protect and grow our capital, which is why we chose to go with the promise of growth in IBM’s price over the dividend yield of WMB. I’m sure WMB will remain on our radar and will likely be a strong contender in the months to come.