When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Universal Display Corporation has fared well over time in a volatile stock market, which is why it’s my top pick to invest in. Below I take a look at three key characteristics of what makes a strong defensive stock investment: its size, financial health and track record.
Universal Display Corporation engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for use in flat panel displays and solid-state lighting applications. Formed in 1985, and headed by CEO Steven Abramson, the company employs 266.00 people and with the market cap of US$9.9b, it falls under the mid-cap category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.
Having high levels of debt can put pressure on companies during downturns since they have to continuously service their debt payments and interest costs. This means they need to maintain enough cash-on-hand for these expenses as well as maintain a cash cushion for unforeseen circumstances, which can get costly. In Universal Display’s case, they have no debt on the books, which eliminates short-term debt pressures highly-levered companies may face. Its current cash position of US$553m is enough to meet near-term liabilities, placing it in a financially robust standpoint in the face of uncertainty.
OLED’s annual earnings growth rate has been positive over the last five years, with an average rate of 18%, outperfoming the market growth rate of 13%. It has also returned an ROE of 16% recently, above the industry return of 12%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Universal Display as an investment over the long run.
Next Steps:Based on these three factors, OLED makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy OLED, I highly urge you to understand more about the company, in particular, in these following areas:
- Future Outlook: What are well-informed industry analysts predicting for OLED’s future growth? Take a look at our free research report of analyst consensus for OLED’s outlook.
- Valuation: What is OLED worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether OLED is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.