When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Sinopec Shanghai Petrochemical 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.
Sinopec Shanghai Petrochemical Company Limited, together with its subsidiaries, manufactures and sells petrochemical products in the People’s Republic of China. Formed in 1972, and headed by CEO Wei Shi, the company now has 9.94k employees and has a market cap of HK$61b, putting it in the mid-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.
Sinopec Shanghai Petrochemical currently has CN¥1.9b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With interest income higher than interest payments, meeting these short-term debt obligations isn’t a problem for Sinopec Shanghai Petrochemical. Moreover, its operating cash flows amply covers its total debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means 338 is financially robust in the face of a volatile market.
338’s profit growth over the previous five years has been positive, with an average annual rate of 39%, beating the industry growth rate of 6.2%. It has also returned an ROE of 22% recently, above the industry return of 9.1%. Sinopec Shanghai Petrochemical’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:Sinopec Shanghai Petrochemical makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Sinopec Shanghai Petrochemical? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for 338’s future growth? Take a look at our free research report of analyst consensus for 338’s outlook.
- Valuation: What is 338 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 338 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.