When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as International Consolidated Airlines Group, S.A. 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.
International Consolidated Airlines Group, S.A., together with its subsidiaries, engages in the provision of passenger and cargo transportation services in the United Kingdom, Spain, Ireland, the United States, and rest of the world. Established in 2010, and run by CEO William Walsh, the company size now stands at 65.03k people and with the company’s market capitalisation at UK£8.3b, we can put it in the large-cap stocks 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 €1.6b debt on its books, International Consolidated Airlines Group has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. International Consolidated Airlines Group generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 9.28x, which is well-above the minimum requirement of 3x. Furthermore, its cash flows from operations copiously covers it debt by over 2x, much higher than the safe minimum of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning IAG’s financial strength will continue to let it thrive in a fickle market.
IAG’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 21%, outperfoming the industry growth rate of 19%. It has also returned an ROE of 35% recently, above the industry return of 25%. International Consolidated Airlines Group’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:Based on these three factors, IAG 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 IAG, 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 IAG’s future growth? Take a look at our free research report of analyst consensus for IAG’s outlook.
- Valuation: What is IAG 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 IAG 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.