Jim Cramer: I love seeing the turnarounds happen in Bed Bath & Beyond and IBM

There is nothing more difficult in business than a turnaround. You have to deal with many more problems than in a startup: legacy systems, employees who don’t buy in, even declining customers who are turned off in new ways.

But it can be done and I love to see it happen. I’m amazed at how Mark Tritton, CEO of Bed Bath & Beyond (BBBY), has gone from a ramshackle and sloppy e-commerce to one of the first direct destinations for consumers with a presentation so electric you can’t. not resist shopping there, especially if you are going back to college. The renovated stores will blow your mind. The skeptics and the myriad of short sellers? Be prepared to go wrong. Mark uses math and magic to dazzle new and old buyers.

There is another turning point, however, that we saw last night that, while nascent, I think it will start to attract portfolio managers who are looking for some value in technology: IBM (IBM).

Now, a lot of people are worried about IBM since it took on huge debt to buy a very unusual property: Red Hat. I had been a huge fan of Red Hat and its CEO Jim Whitehurst, but there is no doubt IBM paid a heavy price for the company, $ 34 billion. However, Red Hat was the first to enter the cloud, and Whitehurst is experiencing steady double-digit growth.

IBM had focused on digital, cognitive, AI, and many other buzzwords, but Red Hat gave the company a distinctive way of explaining its hybrid cloud strategy. The method of helping any business migrate to any cloud, including IBM’s, did not stand out until the purchase of Red Hat. However, growth has stagnated.

That’s where 31-year-old IBM vet Arvind Krishna comes in. Arvind became CEO just over a year ago, not auspicious given the rage of COVID – and hasn’t skipped a beat despite a momentary slowdown in a COVID-related order.

He pledged to part with the legacy IT business without IBM’s growth and devote resources to rapidly growing businesses, which at the same time would make IBM long regarded as a hardware company. , a company with almost 50% software, still seen as a higher margin company that could extend IBM’s low price-to-earnings ratio.

The strategy seems to be working. IBM is adding customers at a rate I’ve never seen before and getting brand names like Verizon (VZ), Schlumberger (SLB) and CVS (CVS) making major commitments to the company. You might have seen the CVS relationship at work if you were one of the millions of people who called the company to ask about vaccines, something CVS alone was not prepared to handle.

These are big changes and with a track record that scared some it looked like they were too big. But Arvind was a fan of paying down debt and has already withdrawn more than $ 18 billion since buying Red Hat.

It can do it because IBM generates an extraordinary amount of cash flow.

That’s fine, but what do investors want? On last night’s conference call, analysts were thrilled to see some revenue growth, a real surprise on the upside, but not thrilled with gross margins, which is left over after the commodities sell off. Arvind patiently explained that when you have a decent hand like he did with hybrid cloud, you need to invest, which will take away the margins now but bring profitable growth in the years to come.

Better yet, Arvind has pledged to pay a large dividend, one that pays 4.65%. I was worried he would pull an ATT (T) and reduce the dividend after committing to it.

Now neither Bed Bath nor IBM can turn around overnight. But they got off to a good start. Wall Street also won’t give its due until they’ve put together a series of great neighborhoods, which is how much damage has been done.

I bet with, not against, the two men. Too much good is happening. Too little wrong. This is how successful turnarounds begin and I see exactly that with IBM and Bed Bath & Beyond.