International Business Machines (IBM) is continuing adding capabilities to its Watson platform in very promising areas which could help the company to resume growth and drive its stock higher. The Watson platform which was launched in 2014, uses machine learning to deduce conclusions from the vast quantity of unorganized data.

In the last few days, IBM announced two new significant developments in the use of its Watson platform.

On December 01, IBM announced a collaboration with Pfizer (PFE) to use the company's Watson for Drug Discovery in order to accelerate Pfizer's research in immuno-oncology. The immuno-oncology is a way to treat cancer by using body's immune system to fight the disease.

Lauren O'Donnell, Vice President of Life Sciences, IBM Watson Health, explained:

"We believe that the next great medical innovations will emerge as researchers and scientists find new patterns in existing bodies of knowledge. In order to do this, they need access to R&D tools that can help them efficiently navigate the opportunities and challenges presented by the explosion of data globally. IBM is honored to collaborate with Pfizer, and put Watson for Drug Discovery to work to support efforts in bringing life-saving immunotherapies to doctors and patients worldwide."

While Pfizer is the first large drug company to utilize IBM Watson for Drug Discovery, some other companies have started recently to use it in their research and development efforts. As I see it, the demand for Watson for Drug Discovery will increase strongly benefiting IBM. After all, according to IBM, while a researcher reads between 200 and 300 articles in a given year, the Watson has studied 25 million Medline abstracts, more than one million full-text medical journal articles, and four million patents. What's more Watson for Drug Discovery is frequently updated.

On November 21, IBM announced global Watson Internet of Things (IoT) consulting solutions. The company now offers an array of new services and capabilities to help its clients; enterprise, developers, and startups, drive digital transformation with IoT.

Harriet Green, General Manager, IBM Watson IoT, Commerce and Education, said:

The Internet of Things is making an enormous impact on our lives and helping to spur even deeper levels of innovation for those developing the connected devices and products of our future. IBM is helping knock down the barriers to getting started with IoT, making it accessible for clients as they begin their digital transformation.”

The Internet of Things is a fast growing area, and Forrester Research recently named IBM as a leader in IoT software platforms. According to Business Insider report, almost $6 trillion will be spent on Internet of Things solutions over the next five years. In my view, the use of Watson solutions in IoT could increase IBM leadership in this area even more.

IBM Stock Performance

Year to date, IBM's stock is already up 16.3% while the S&P 500 index has increased 7.2%, and the Nasdaq Composite Index has gained 5.0%. However, since the beginning of 2012, IBM has lost 13%. In this period, the S&P 500 Index has increased 74.3%, and the Nasdaq Composite Index has risen 101.7%. According to TipRanks, the average target price of the top analysts is at $150, representing a downside of 6.3% from its December 2 close price of $160.02. However, due to new developments IBM's stock could go much higher, in my opinion.

Valuation

IBM's valuation is pretty good. The trailing P/E is low at 13.04, the forward P/E is even lower at 11.50, and the price to cash flow is also low at 9.53. Furthermore, the Enterprise Value/EBITDA ratio is low at 10.53, and the price to sales ratio is at 1.90.

What's more, most IBM's Margins and Return on Capital parameters have been much better than its industry median, its sector median, and the S&P 500 median as shown in the tables below.

Source: Portfolio123

Conclusion

IBM is continuing adding capabilities to its Watson platform in very promising areas which could help the company to resume growth and drive its stock higher. As I see it, the demand for Watson for Drug Discovery will increase strongly benefiting IBM. Also, the use of Watson solutions in IoT could increase IBM leadership in this area even more. The average target price of the top analysts is at $150, representing a downside of 6.3% from its December 2 close price of $160.02. However, due to new developments IBM's stock could go much higher, in my opinion.