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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Fresenius Medical Care AG & Co. KGaA 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.
Fresenius Medical Care AG & Co. KGaA, a kidney dialysis company, provides dialysis care and related services, and other health care services in Germany, the United States, and internationally. Started in 1996, and run by CEO Robert Powell, the company now has 112.66k employees and with the market cap of €22b, it falls under the large-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
With €7.5b debt on its books, Fresenius Medical Care KGaA has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With an interest coverage ratio of 7.16x, Fresenius Medical Care KGaA produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its operating cash flows amply covers its total debt by 27%, above the safe minimum of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
FME’s profit growth over the previous five years has been positive, with an average annual rate of 19%, outperfoming the industry growth rate of 7.7%. It has also returned an ROE of 17% recently, above the industry return of 8.6%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Fresenius Medical Care KGaA 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. Fresenius Medical Care KGaA 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 FME’s future growth? Take a look at our free research report of analyst consensus for FME’s outlook.
- Valuation: What is FME 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 FME 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.