When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Applied Materials, Inc. has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. Formed in 1967, and run by CEO Gary Dickerson, the company now has 21.60k employees and with the stock’s market cap sitting at US$44b, it comes under the large-cap group. 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.
Currently Applied Materials has US$5.3b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Applied Materials generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 30.18x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by 66%, above the safe minimum 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.
AMAT’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 27%, beating the market growth rate of 13%. It has also returned an ROE of 37% recently, above the industry return of 12%. Characteristics I value in a long term investment are proven in Applied Materials, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Based on these three factors, AMAT 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 AMAT, 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 AMAT’s future growth? Take a look at our free research report of analyst consensus for AMAT’s outlook.
- Valuation: What is AMAT 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 AMAT 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.