"Earnings prospects for companies in the information technology (IT) sector are surprisingly resilient, and one of the best-placed and most recession-resistant IT stocks is IBM (NYSE: IBM)," notes Elliott Gue.
In Personal Finance, he adds, "In the recession of 2001, tech stocks were among the hardest hit groups in the S&P 500, but that was mainly a hangover from the technology bubble of the late 1990s that saw many big-cap tech firms soar to unprecedented valuation levels.
"The tech sector today bears no resemblance to what it was in the early part of this decade. The S&P 500 IT sector now trades at a slight valuation premium to the S&P 500 as a whole, and many of the largest names have impressive, cash-heavy balance sheets.
"In addition, over the past year the tech-heavy Nasdaq Composite is outperforming the S&P 500 by more than 10 percentage points.
"Many investors believe that IBM is still in the personal computer (PC) business, but Big Blue has divested its PC, hard disk drive manufacturing and several other cyclical business lines over the past five years.
"More than 80% of IBM's earnings come from technology services and software. The company is particularly adept at setting up and managing complex networks and software systems for large-cap international firms. For example IBM's middleware solutions allow different computer systems across a company to communicate with one another.
"IT services represent a steady, recurring revenue stream for IBM. Because IBM already has existing relationships with the majority of the world's multinational firms, it's well-placed to win follow-up contracts to perform ongoing work.
"And many of IBM's key software and service offerings are designed to cut costs for companies and improve the efficiency of their IT infrastructure.
"And during downturns, companies are always looking for ways to cut costs.Back in late January, IBM surprised investors by raising its guidance for 2009 despite the deepening economic gloom.
"In a recent letter to shareholders, Chief Executive Officer Samuel Palmisano offered an upbeat outlook for the firm, stating that IBM has an opportunity to be aggressive in the current downturn and take advantage of some competitors' weaker financial positions.
"IBM is positioned to do just that, with $13 billion in cash on its balance sheet. IBM, a new addition to our model Growth Portfolio, is a buy under $100."
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