When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as GAIL (India) Limited 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 GAIL (India)
GAIL (India) Limited operates as a natural gas transmission company in India and internationally. GAIL (India) was established in 1984 and with the market cap of ₹574b, it falls under the mid-cap group. 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.
Currently GAIL (India) has ₹22b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. GAIL (India) generates enough earnings to cover its interest payments, however its interest expenses are already well-covered by its interest income. Moreover, its cash flows from operations copiously covers it debt by over 2x, much higher than the safe minimum of 0.2x. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means GAIL is financially robust in the face of a volatile market.
GAIL’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 24%, outpacing the industry growth rate of 20%. It has also returned an ROE of 14% recently, above the market return of 24%. GAIL (India)’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.
Next Steps:
GAIL (India) makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with GAIL (India)? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:- Future Outlook: What are well-informed industry analysts predicting for GAIL’s future growth? Take a look at our free research report of analyst consensus for GAIL’s outlook.
- Valuation: What is GAIL 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 GAIL 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.