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Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – STMicroelectronics N.V.. Looking at its size, financial health and track record, I believe there’s an opportunity with STMicroelectronics during these volatile times.
STMicroelectronics N.V., together with its subsidiaries, develops, manufactures, and markets semiconductor products worldwide. Established in 1987, and headed by CEO Jean-Marc Chery, the company now has 45.95k employees and with the company’s market capitalisation at €13b, we can put it in the large-cap group. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
With US$2.2b debt on its books, STMicroelectronics has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. STMicroelectronics generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 668x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by 79%, which is higher than the bare minimum requirement of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
STM’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 63%, beating the industry growth rate of 26%. It has also returned an ROE of 19% recently, above the industry return of 11%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in STMicroelectronics as an investment over the long run.
Next Steps:STMicroelectronics makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with STMicroelectronics? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for STM’s future growth? Take a look at our free research report of analyst consensus for STM’s outlook.
- Valuation: What is STM 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 STM 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 firstname.lastname@example.org. 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.