5 Reasons To Buy Sony
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in…
- 1 More Reason To Avoid Burlington Stores
- 2 Reasons To Avoid Home Depot
- 3 Reasons To Avoid Target
- 2 Reasons To Avoid Lowe’s
- 5 Reasons To Avoid Hilton
- 1 Reason To Avoid Tesla
- 2 Reasons To Avoid Netflix
- 2 Reasons To Avoid GM
- 2 Reasons To Avoid Nike
- 2 Reasons To Avoid Starbucks
- 1 More Reason To Avoid GE
Today, I want to show you 5 Reasons To Buy Sony To Depression Proof Your Portfolio.
Sony Corp (SNE) is a worldwide software and electronics conglomerate that creates, manufacturers, produces, and sells TV’s, PC’s, cameras, smartphones, and video game consoles and software.
Sony is based in Tokyo Japan. It has a $94.6 billion market cap. And it pays a 0.6% dividend.
This is reason #1 to buy Sony to Depression Proof Your Portfolio.
Sony’s 0.6% Dividend
Over the last decade Sony’s paid out a total of $2.52 per share in dividends.
At today’s share count of 1.255 billion shares that’s equal to $3.78 billion paid out to shareholders in the last decade.
This may not seem like much for a company of its size, but it’s still grown its dividend in the last decade.
From $0.30 per share in 2011 to $0.42 per share in 2020. This is a 40% increase to its annual dividend during the last decade…
A time of major transition and improvement for the company which I’ll talk about more below.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
Plus, its only paying out 8.4% of its earnings as dividends so it has large room to increase amount paid out per share going forward.
It can do this because it now earns huge profits and cash flows. Which is reason #2 to buy Sony to Depression Proof Your Portfolio.
Sony Now Earns Large Profits
Over the last decade it earned an average operating income margin of 2.7% per year.
I look for anything above 10% on a consistent basis so MSFT surpasses this number.
Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operation profit margins above 10% over long periods of time.
This makes Sony a poor operating business over the last decade… But it’s also not the full story.
The major business transition I mentioned above took place during much of the earlier part of the last decade.
And it’s now paying off for Sony and its shareholders.
From 2018 to 2020 Sony increased its operating profit margin to an average of 9.4% over the last 3 years… And its still improving because so far in 2020 its operating profit margin is up to 10.1%.
This surpasses my threshold for great operating businesses.
And it also means Sony now earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 6.5% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.
And in the last 3 years it improved this metric enormously as well… It’s now at 11.2% on average which is well above the 5% I look for.
It’s now large profits and cash flow and growing dividend payments over time make Sony a safe income play in whatever is to come in the next few months or years.
But these profits also allow another layer of safety because Sony’s business is largely protected from negative effects of the coronavirus… Which is reason #3 to buy its stock.
The Coronavirus Won’t Harm Sony
People may stop paying their mortgages.
They may stop paying their credit cards.
They may stop paying their vehicle loans.
And they may stop paying their student loans.
Because of the mass unemployment caused economic issues we’re now dealing with people may stop paying these things if they need to.
But people w0n’t stop buying phones, and computers, and video game consoles… At least they haven’t yet as of this writing.
This was illustrated when Sony released its most recent quarterly report on August 4th, 2020.
- Revenue grew 2.2%
- Operating profits only fell 1.1%
- And net income rose 48.8%
These impressive results were achieved while many other companies’ revenues, profits, and cash flows are getting crushed by the coronavirus pandemic.
This shows the power of the company and its ability to survive and thrive during this pandemic… No matter how long it lasts.
Especially with the highly anticipated launch of the PlayStation 5 later this year.
And this means you should expect the dividend payments to continue as well.
But what do these profits and cash flows mean for Sony’s debt levels?
Sony Has Low Debt
As of this writing its debt to equity ratio is 0.22.
I look to buy companies that have a debt to equity below 1.
Because the lower debt levels the company has, the lower chance it has of going bankrupt. And this makes it a safer investment.
But what about its valuation? Is it cheap?
Sony IS Cheap
With the markets at or near all-time highs you’d expect a fantastic stock like Sony to be selling at an enormous valuation.
But it’s not.
As of this writing its P/E is 15.6.
Its P/CF is 7.
And its forward P/E is 20.8.
On all three metrics I look to buy investments below 20 to consider them undervalued.
This means, at its current valuations that Sony is undervalued by a good margin.
And this means investing in its stock today gives you a margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning its stock in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Sony selling at an undervalued price today that means its less risky, that there’s a larger margin of safety, and that you should expect to earn higher investment returns owning its stock going forward.
If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in Sony.
Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.