Increasing cashflow. Excellent management. Strong demand for products. Dividend payer. This one checks all the boxes of an investment worth getting in for the long term, and it’s ‘on sale’ with the stock price currently well below valuation.
This is Lam Research (Nasdaq: LRCX). Yes, the stock price has skyrocketed over the last 8 years, but it’s still a bargain. Here’s why.
- Cash flow has increased every year for the last 6 years
- $5.7 billion in cash reserves, versus a debt of just half that amount
- 24% profit margin
- 35% projected growth for 2018
No one can argue with solid financials like that. Additionally, revenue has grown on average 30% per year for the last 8 years. The dividend has grown as well increasing by more than 10% a year over the last four years. Future demand is only getting stronger as the semiconductor space is hot right now.
Chips that once were only found running your computer are now connecting everything around us – cars, phones, watches, speakers, light bulbs, refrigerators, etc. as our homes and belongings become ‘smarter’. It’s called the Internet of Things (IoT) and it’s driving demand for smarter, and smaller chips everyday. It’s estimated there were 8.4 billion IoT devices in 2017, and that number will grow to over 20 billion by 2020.
Broadcom, Qualcom, NXP and AMD are big names in the semiconductor space and names you might be familiar with, but Lam Research is in focus today because of the value we are able to get in at; Lam is trading at 16 times earnings. To put this in perspective, most stocks are trading at a rate 20-30% higher than this. This is just another reason that we want to own Lam right now, and hold it for years to come.