2 Top Bargain Stocks Ready for a Bull Run

Key Points

• It might seem hard to find bargains in this frothy market.

• But IBM's growth could accelerate as its hybrid cloud and AI businesses expand.

• Oracle is also poised to profit from the growth of the AI market.

• 10 stocks we like better than International Business Machines ›

With the S&P 500 and Nasdaq Composite hovering near their all-time highs, it might not seem like the best time to shop around for new stocks. As Warren Buffett once said: "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

At first glance, it doesn't seem like there are too many bargains in this frothy market. But if you look closer, you can still find some conservative plays that aren't fully valued relative to their long-term growth potential. I believe these two blue chip tech giants fit that description: IBM (NYSE: IBM) and Oracle (NYSE: ORCL).

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IBM

IBM was once a fading tech giant that focused too much on cutting costs and buying back shares instead of investing in its future. But under Arvind Krishna, who took over as CEO in 2020, IBM grew again by expanding its higher-growth hybrid cloud and artificial intelligence (AI) businesses. It also spun off its slower-growth managed infrastructure services segment as Kyndryl.

Instead of going head-to-head against public cloud giants like Amazon and Microsoft, Krishna's IBM relied on its open source software subsidiary, Red Hat, to roll out more hybrid services that could be wedged between public and private clouds. That flexibility made it a popular choice for companies with a lot of on-site data tethered to multiple cloud deployments.

From 2020 to 2024, IBM's revenue and earnings per share (EPS) increased at a compound annual growth rate (CAGR) of 3% and 1%, respectively. Those growth rates might seem anemic, but they mark a major improvement from its preceding years of shrinking revenue and profits.

From 2024 to 2027, analysts expect its revenue and EPS to grow at a CAGR of 5% and 17%, respectively, as it continues to expand its AI and hybrid cloud platforms. Its stock still looks reasonably valued at 27 times its adjusted forward earnings, and it pays a decent forward dividend yield of 2.3%. It spent just over half of its free cash flow (FCF) on those dividends over the past 12 months. While IBM probably won't generate dizzying gains over the next decade, its shares could rally a lot higher as more investors recognize its long-term growth potential.

Oracle

Oracle, the world's top database software provider, was also once considered a mature tech giant with limited upside potential. Yet over the past decade, it grew again as the company transformed its on-site software into cloud-based services, expanded its cloud infrastructure platform, launched more enterprise resource planning (ERP) tools, and acquired more companies.

From fiscal 2015 to fiscal 2025 (which ended in May), Oracle's revenue and EPS increased at a CAGR of 4% and 7%, respectively. Over the past decade, it repatriated billions of dollars in cash, acquired about two dozen companies, and bought back more than a third of its shares.

Oracle's leadership of the database market puts in it a strong position to expand its cloud and AI businesses, since it hosts all of the data that supports those services. Its Oracle Cloud Infrastructure (OCI) platform isn't as big as Amazon Web Services (AWS) or Microsoft Azure, but it already serves big customers like Bank of America, Nvidia, and ByteDance's TikTok. It's been rolling out more tools in OCI to help clients optimize data for their generative AI applications.

From fiscal 2025 to fiscal 2028, analysts expect Oracle's revenue and EPS to grow at a CAGR of 18% and 21%, respectively, as the AI market continues to expand. It might not seem cheap at 34 times its forward adjusted earnings, but its accelerating growth should justify that higher valuation. Oracle's forward yield of 0.9% probably won't impress any income investors, but its low payout ratio of 39% gives it plenty of room for future dividend hikes.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of Motley Fool Money. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Bank of America, International Business Machines, Kyndryl, Microsoft, Nvidia, and Oracle. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.