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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Harvey Norman Holdings 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.
Harvey Norman Holdings Limited grants franchises to independent franchisees. Started in 1982, and headed by CEO Kay Lesley Page, the company provides employment to 5.42k people and with the market cap of AU$4.2b, it falls under the mid-cap category. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
With AU$925m debt on its books, Harvey Norman Holdings has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With interest income higher than interest payments, meeting these short-term debt obligations isn’t a problem for Harvey Norman Holdings. Moreover, its operating cash flows amply covers its total debt by 49%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning HVN’s financial strength will continue to let it thrive in a fickle market.
HVN’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 20%, overtaking the industry growth rate of 4.8%. It has also returned an ROE of 13% recently, above the market return of 15%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Harvey Norman Holdings as a long-term hold.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Harvey Norman Holdings tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for HVN’s future growth? Take a look at our free research report of analyst consensus for HVN’s outlook.
- Valuation: What is HVN 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 HVN 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 firstname.lastname@example.org. 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.