When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Yanzhou Coal Mining Company Limited 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.
Yanzhou Coal Mining Company Limited, an investment holding company, Limited explores, mines, washes, processes, and sells coal in China, Japan, South Korea, Australia, and internationally. Yanzhou Coal Mining was formed in 1973 and with the company’s market cap sitting at HK$44b, it falls under the mid-cap group. 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.
Currently Yanzhou Coal Mining has CN¥55b 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 35.25x, Yanzhou Coal Mining 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 43%, 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 1171’s financial strength will continue to let it thrive in a fickle market.
1171’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 36%, outpacing the industry growth rate of 13%. It has also returned an ROE of 12% recently, above the industry return of 11%. Characteristics I value in a long term investment are proven in Yanzhou Coal Mining, and I can continue to sleep easy at night with the stock as part of my portfolio.
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. Yanzhou Coal Mining 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 1171’s future growth? Take a look at our free research report of analyst consensus for 1171’s outlook.
- Valuation: What is 1171 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 1171 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 email@example.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.