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 – Westlake Chemical Corporation. Looking at its size, financial health and track record, I believe there’s an opportunity with Westlake Chemical during these volatile times.
Westlake Chemical Corporation manufactures and markets basic chemicals, vinyls, polymers, and building products worldwide. Formed in 1986, and led by CEO Albert Chao, the company currently employs 8.87k people and has a market cap of US$8.8b, putting it in the mid-cap stocks 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.
Westlake Chemical currently has US$2.7b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Westlake Chemical generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 13.32x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by 53%, 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.
WLK’s annual earnings growth rate has been positive over the last five years, with an average rate of 18%, outpacing the industry growth rate of 7.0%. It has also returned an ROE of 17% recently, above the industry return of 17%. Westlake Chemical’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.
Next Steps:Westlake Chemical 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 Westlake Chemical? 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 WLK’s future growth? Take a look at our free research report of analyst consensus for WLK’s outlook.
- Valuation: What is WLK 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 WLK 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.