Motorola Solutions (M: YES -1.71%) it is the remaining portion of Motorola following its spin-off of the mobile phone division into Motorola Mobility Holdings in 2011. Motorola Solutions has likely disappeared from most investors’ radar screens because it has never been a flashy hyper-growth company. , the type of action popular in a bull market.
Also, some still associate him with the old mobile phone business he sold. But this company is the jewel in the crown of the old Motorola, Inc. and a worthy consideration for people looking for a company capable of surviving in these difficult times.
Here’s why you should consider buying this recession-resistant business.
Motorola Solutions manufactures essential products
This company sells products and software on three technology platforms: Land Mobile Radio (LMR), Command Center Software, and Video Security and Analytics.
LMRs are two-way push-to-talk radios that organizations can use as portable walkie-talkies, vehicle-mounted radios, or fixed base stations. Public safety applications include law enforcement, fire and emergency medical services, utilities, and more. Commercial industries also use LMRs in private communications networks.
Command Center Software is a cloud-based software suite that collects data from 911 calls, dispatchers, video, field reports, intelligence operations, evidence, and other sources. And it makes this data actionable for police and first responders.
Video Security and Analytics includes products such as artificial intelligence (AI)-powered video surveillance systems, in-car police cameras, body cameras, and license plate recognition systems.
The above services are mission critical products and services for governments and private companies. Even in the midst of a deep recession, communication and security are “must have” services. For example, barring Armageddon, state or local governments are unlikely to stop buying products or services that trigger 911 calls and enable police, fire, and emergency services responses. And because the company’s business and public safety products and services are essential, your business remains resilient in most economic environments.
The business has two tailwinds
Motorola Solutions CEO Jack Molloy identified two tailwinds for the business on his Q2 2022 earnings call.
The first is the American Rescue Plan Act (ARPA), which provides relief funds to state, local, and tribal governments that have been negatively affected by COVID. The benefit to Motorola is that police, EMS, fire departments, schools and other public safety services can use ARPA money to purchase security and communication products. According to Molloy, the company should benefit from these ARPA-funded purchases until at least 2024.
Second, inflation is beneficial to government budgets because it often has the side effect of increasing tax revenue, which puts more money in the state coffers. This increases the ability to purchase more products and services from Motorola Solutions. Consequently, demand can remain stable or even increase in an inflationary environment.
Steady growth, profitability and lasting cash flows
Today, many investors are inclined to invest in companies that can thrive in a terrible economy: companies with consistent growth, long-lasting cash flows, and stable profitability. Motorola Solutions has all three attributes.
The company recently reported consistent revenue in the second quarter of 2022 of $2.1 billion, up 9% year over year. Additionally, due to the company’s strong and growing order book of $13.4 billion and strong tailwinds, management has raised its 2022 revenue guidance from a previous 7% growth figure to approximately 8%. And the best thing is that this growth is profitable.
The chart below shows that net income, a measure of profitability, grew throughout 2021, even as inflation spiked in April of that year. And the stock price has tracked net income higher and is trading just 8% below its all-time high on December 29, 2021. Much better than fast-growing, unprofitable tech stocks, many of which are have plunged more than 50% below their all-time high.
Net Income MSI (TTM). Data by YGraphics. TTM = last 12 months.
Lastly, the company produced stable free cash flow (FCF) of $999 million in the last 12 months beginning in June 2022, ensuring that it could meet record demand during an era of supply chain disruptions. Typically, a company will only invest in buying more inventory when it is sure that its products are in high demand.
MSI Free Cash Flow. data by YGraphics.
The good news is that the company expects the FCF to pick up more in the second half of 2022, driven by higher profitability.
Should you buy Motorola solutions?
Once the Fed tames inflation and economic growth picks up again, you may be able to find many higher-growth stocks that offer better capital appreciation than Motorola Solutions.
However, if you’re a nervous investor who can’t sleep at night in this terrible bear market, there are few better investments than this company if you want to protect your hard-earned money.
