When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Carnival plc has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
View our latest analysis for Carnival
Carnival plc operates as a leisure travel company in North America, Australia, Europe, and Asia. Founded in 1850, and run by CEO Arnold Donald, the company now has 102.00k employees and with the stock’s market cap sitting at UK£28b, it comes under the large-cap group. 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.
Currently Carnival has US$12b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 18.32x, Carnival produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its operating cash flows amply covers its total debt by 48%, 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.
CCL’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 22%, beating the industry growth rate of 12%. It has also returned an ROE of 13% recently, above the industry return of 9.4%. Characteristics I value in a long term investment are proven in Carnival, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:
Based on these three factors, CCL makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy CCL, I highly urge you to understand more about the company, in particular, in these following areas:- Future Outlook: What are well-informed industry analysts predicting for CCL’s future growth? Take a look at our free research report of analyst consensus for CCL’s outlook.
- Valuation: What is CCL 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 CCL 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.