Can Adobe Systems Incorporated (NASDAQ:ADBE) Save Your Portfolio?

July 27, 2018

When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Adobe Systems 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.

See our latest analysis for Adobe Systems

Adobe Systems Incorporated operates as a diversified software company worldwide. Adobe Systems was founded in 1982 and with the stock's market cap sitting at US$126.08b, it comes 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.

NasdaqGS:ADBE Historical Debt July 27th 18

Adobe Systems currently has US$1.88b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With interest income higher than interest payments, meeting these short-term debt obligations isn't a problem for Adobe Systems. Furthermore, its operating cash flows amply covers its total debt by 185.96%, above the safe minimum of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning ADBE's financial strength will continue to let it thrive in a fickle market.

NasdaqGS:ADBE Income Statement Export July 27th 18

ADBE’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 18.63%, overtaking the industry growth rate of 12.97%. It has also returned an ROE of 24.90% recently, above the industry return of 13.11%. Characteristics I value in a long term investment are proven in Adobe Systems, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Whether you're convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Adobe Systems tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I've compiled a list of factors for you to continue your reading before you buy:

Future Outlook: What are well-informed industry analysts predicting for ADBE’s future growth? Take a look at our free research report of analyst consensus for ADBE’s outlook.
Valuation: What is ADBE 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 ADBE 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

mitchell_lawler

A landmark settlement is meant to punish Meta (META). If the 1998 tobacco deal is any guide, it might protect it.

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zoe_vi5fn2d

Any moat with an opt-out clause for your competitors is just a fence around your own garden.

connor_iwn1g2d

Worth looking at what previous legal action actually did to Meta rather than reaching for tobacco. The FTC's record five billion dollar privacy fine in 2019 was met with the stock rising, because it came in below fears and removed an open question. GDPR was designed to constrain large platforms and increased their share of the European ad market, because compliance cost fell hardest on small intermediaries. The FTC's antitrust case, the one that could genuinely have broken the company up, was decided in Meta's favour last November. The only thing that ever meaningfully hurt the business was Apple changing a tracking default, and Meta out-spent that too, while the ad-tech firms that could not afford to rebuild disappeared. The pattern is not that Meta survives regulation. It is that regulation keeps costing its smaller competitors more.