Top Bear Market Investment: Spirax-Sarco Engineering plc (LON:SPX)

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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Spirax-Sarco Engineering plc 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.

Check out our latest analysis for Spirax-Sarco Engineering

Spirax-Sarco Engineering plc provides engineered solutions for users of industrial and commercial steam systems, electrical heating and temperature management systems, and process fluid paths and pumping systems. Started in 1888, and led by CEO Nicholas Anderson, the company size now stands at 7.52k people and has a market cap of UK£6.0b, putting it in the mid-cap stocks category. 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.

Spirax-Sarco Engineering currently has UK£423m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With an interest coverage ratio of 35.77x, Spirax-Sarco Engineering 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 48%, above the safe minimum of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning SPX's financial strength will continue to let it thrive in a fickle market.

SPX’s annual earnings growth rate has been positive over the last five years, with an average rate of 16%, outperfoming the industry growth rate of 8.4%. It has also returned an ROE of 29% recently, above the industry return of 12%. Spirax-Sarco Engineering'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:

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. Spirax-Sarco Engineering 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:

1. Future Outlook: What are well-informed industry analysts predicting for SPX’s future growth? Take a look at our free research report of analyst consensus for SPX’s outlook.
2. Valuation: What is SPX 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 SPX is currently mispriced by the market.
3. 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.