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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Texas Instruments Incorporated 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.
Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. Formed in 1930, and led by CEO Richard Templeton, the company now has 29.89k employees and with the company’s market cap sitting at US$107b, it falls under the large-cap category. Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.
With US$5.8b debt on its books, Texas Instruments has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. Texas Instruments generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 46.09x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by 124%, 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.
TXN’s profit growth over the previous five years has been positive, with an average annual rate of 16%, outpacing the market growth rate of 13%. It has also returned an ROE of 64% recently, above the industry return of 14%. Texas Instruments’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:Texas Instruments 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 Texas Instruments? 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 TXN’s future growth? Take a look at our free research report of analyst consensus for TXN’s outlook.
- Valuation: What is TXN 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 TXN 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.