The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

by Pat Dorsey

IBM is a classic example of what I call “manufactured growth,” because it used almost all of the previously mentioned techniques to pump up its bottom line during the 1990s. As shown in Figure 6.1, Big Blue’s earnings per share growth looks pretty good since the Lou Gerstner-led turnaround began in the early 1990s—close to double digits most years, which is not bad for a company of this size. But when we look at operating income, it looks as though the company was growing much slower, while sales growth was stuck around 5 percent on average. As a double-check, take a quick look at cash flow from operations—unfortunately, this also looks pretty stagnant from 1995 through the end of the decade (see Figure 6.2).