The stock market is off to a great start this year. S&P500 In just a few months, the index has risen about 10%. As stock prices rise, genuine bargains are becoming harder to come by.
However, there are still some stocks that look like great deals. AT&T (T 0.28%) and international business machine (IBM 0.08%) Although it has risen with the market, this stock offers great value for investors looking for a bargain.
AT&T is not the same company it was a few years ago. The telecom giant attempted to transform itself into a media conglomerate, but failed, acquiring media companies and racking up huge debts in the process. It took time to undo the damage, but AT&T has now largely eliminated all but its core wireless and wireline businesses.
Although debt levels remain a drag, AT&T has been able to generate free cash flow despite investing heavily in 5G and fiber optics. The company will generate $16.8 billion in free cash flow in 2023, and expects this metric to rise to a range of $17 billion to $18 billion this year.
On the wireless side, AT&T continues to gain new subscribers. The company grew net postpaid phone subscribers to 1.7 million in 2023 and reported record operating profit for its mobility division. On the wireline side, AT&T increased fiber revenue by 27% and net new subscribers increased by 1.1 million.
Based on the midpoint of AT&T's free cash flow guidance, the stock is trading at modest levels. Its market capitalization is approximately $126 billion, and its price-to-free cash flow ratio is just 7.2 times.
AT&T's performance depends not only on economic conditions but also on consumer appetite for new smartphones and expensive wireless plans. But with media attention gone and the company fully focused on its wireless and fiber business, AT&T stock could deliver impressive returns for investors as the gloomy clouds lift.
A leader in enterprise AI
Large companies and organizations, especially those operating in highly regulated industries, face unique challenges when implementing AI technology. You need to protect customer and proprietary data, comply with regulations, and minimize risk. Although advanced AI models are becoming more powerful, they are still prone to a variety of problems, including hallucinations and vomiting of training data.
IBM offers a solution in the form of watsonx, the tech giant's enterprise AI platform. Customers can train, validate, and deploy generative AI models, store large amounts of data related to AI model training, and monitor AI applications to ensure they don't go off the rails.
IBM is still in the early stages of turning Watsonx into a major business, but so far the results have been positive. Shortly after watsonx components became available, the amount of booked business related to generative AI reached the low hundreds of millions of dollars by the end of the third quarter. That amount doubled by the end of the fourth quarter as demand remained strong.
IBM's secret weapon is its consulting business, which is responsible for driving about two-thirds of its generative AI business. Businesses need a capable AI platform, but they also need guidance, expertise, and integrated solutions. IBM can provide all of the above.
IBM stock has been rising recently, so it's not as cheap as it was a year ago. But with free cash flow expected to be around $12 billion this year, a price-to-free cash flow ratio of less than 15 seems like a steal. IBM has established itself as a leader in enterprise AI, and the long-term opportunity is likely to reach billions of dollars.
Timothy Green has held positions at AT&T and International Business Machines. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.
