Strong Cash Yield: Is Gen Digital Stock A Buy?
Gen Digital (GEN) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market
GEN Has Good Fundamentals
- Good Cash Yield: Not many stocks offer free cash flow yield of 13.1%, but Gen Digital stock does
- Strong Margin: Last 12 month operating margin of 37.3%
- Growth: Last 12 revenue growth of 21.5% – low growth, but this selection is all about high yield and margin
- Valuation: GEN stock currently trading at 40% below 2Y high, 10% below 1M high, and at a PS lower than 3Y average.
Below is a quick comparison of GEN fundamentals with S&P medians.
| GEN | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Systems Software | – |
| Free Cash Flow Yield | 13.1% | 4.3% |
| Revenue Growth LTM | 21.5% | 6.8% |
| Revenue Growth 3YAVG | 15.3% | 5.5% |
| Operating Margin LTM | 37.3% | 18.6% |
| Operating Margin 3YAVG | 36.0% | 18.1% |
| PE Ratio | 19.2 | 24.3 |
*LTM: Last Twelve Months
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But What Is The Risk Involved?
While GEN stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. GEN took some serious hits in past crashes: 63% in the Dot-Com bubble, 56% during the Global Financial Crisis, and nearly 48% in the 2018 correction. The inflation shock saw it drop about 48% as well. Even the Covid selloff, which was sharper for many, still pushed GEN down nearly 25%. The stock has good fundamentals, but history shows it’s far from immune when the market turns south. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read GEN Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
For more details and our view, see Buy or Sell GEN Stock.
Stocks Like GEN
Not ready to act on GEN? Consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Dipped last month & meaningfully below 2Y high
- Current P/S < last few year average
- Strong operating margin with no instances of large margin collapse
- High free cash flow yield
A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:
- Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
- Win rate (percentage of picks returning positive) of about 74% for 12-month period
- Strategy consistent across market cycles
Smart Investing Begins With Portfolios
Single stocks swing wildly, but staying invested matters. A well-built portfolio helps you stay invested, captures upside, and softens the blows from individual stocks.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.