International Business Machines (IBM - Free Report) , the world’s largest computer-services provider, reported yet another anemic quarter of revenue growth on Monday after the closing bell. Though the company beat our earnings estimates, second-quarter 2015 revenues fell short and declined on a year-over-year basis for the thirteenth consecutive quarter.
IBM Q2 Results in Focus
Earnings per share came in at $3.84, well above our estimate of $3.80 but lower than the year-ago earnings of $4.43. Revenues dropped 13% year over year to $20.8 billion and missed the Zacks Consensus Estimate of $21.1 billion. Higher sales of the new mainframe and cloud-computing services were offset by weakness in the hardware business and a strong dollar. In fact, a strong dollar and divested businesses eroded 9% and 4% of revenue growth, respectively.
IBM is moving its low-margin businesses such as cash registers, low-end servers and semiconductors to strategic growth areas like cloud computing, big data and mobile security over the past three years. While the cloud business is progressing on the right path, it is yet to pay off and has failed to make up for the revenue lost from divestitures (read: Beyond XLK: 3 Great Tech ETFs).
For fiscal 2015, the company expects currency headwind to remain a major drag on revenue growth and profitability. It maintained its earnings per share guidance in the range of $15.75–$16.50, the midpoint of which is below the Zacks Consensus Estimate of $15.91.
Based on the revenue miss, shares of IBM tumbled as much as 5.3% in after-market hours following the earnings announcement. However, the dip in price could be a nice entry point as the stock currently has a Zacks Rank #3 (Hold) and belongs to a good Zacks Industry Rank in the top 34%.
Further, IBM is a great value pick at current levels with Value Style Score of ‘A’ as well as a good Momentum Style Score of ‘B’. Growth Style Score of ‘C’ is also not bad. This suggests that IBM has the potential to grow in the coming months given its focus on strategic growth business (see: all the Technology ETFs here).
ETFs to Watch
Given this, ETFs with the highest allocation to this tech giant will be in focus for the days ahead:
First Trust NASDAQ Technology Dividend Index Fund ((TDIV - Free Report) )
This fund provides exposure to the dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $606.6 million in its asset base while trades in volume of around 178,000 shares per day. The ETF charges 50 bps in annual fees.
In total, the fund holds about 110 securities in its basket. Of these firms, IBM takes the top spot, making up roughly 8.59% of the assets. In terms of industrial exposure, the fund allocates one-fifth portion in semiconductor and semiconductor equipment, followed by technology hardware, storage & peripherals (17.2%) and software (15.8%). The fund has lost 3.3% so far this year (read: 2 Excellent Dividend Growth ETFs in Focus).
SPDR Dow Jones Industrial Average ETF ((DIA - Free Report) )
This fund follows the Dow Jones Industrial Average, providing exposure to 32 blue-chip U.S. stocks. IBM occupies the second position in the basket with 6.37% share. The ETF is well spread out across a number of sectors with industrials, information technology, financials, consumer discretionary and health care taking the top five spots with double-digit exposure each.
DIA is one of the largest and most popular ETFs in the space with AUM of $12.6 billion and average daily volume of more than 5 million shares. The fund charges 17 bps in annual fees from investors and is up 2.7% in the year-to-date time frame.
PureFunds ISE Big Data ETF ()
This product made a successful debut in the market last week gathering $2.6 million in its asset base so far. It targets the niche corner – the big data and analytics industry – in the broad technology space. The fund follows the ISE Big Data Index, holding 32 securities in its basket. Of these, IBM takes the third spot at 5.54% share. The ETF is costly, charging 75 bps in annual fees and expenses. Volume is light as it currently exchanges about 6,200 shares in hand.
PowerShares BuyBack Achievers Portfolio ((PKW - Free Report) )
This ETF tracks the NASDAQ US Buyback Achievers Index, which comprises companies that have repurchased 5% or more of their common stock in the trailing 12 months. Holding 210 stocks in its basket, IBM occupies the top position at 5.38% (read: Profit from the Buyback Bonanza with These ETFs).
In terms of sectors, consumer discretionary makes up for less than one-third of the portfolio while information technology, industrials and financials round off the top three with double-digit exposure each. PKW is one of the popular funds in the niche space managing an asset base of $2.9 billion and trading in good volumes of 307,000 shares a day. It charges a bit higher annual fee of 68 bps and has added 3.5% so far this year.
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 >>