When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as ASM Pacific Technology Limited 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.
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ASM Pacific Technology Limited, an investment holding company, engages in the design, manufacture, and marketing of machines, tools, and materials used in the semiconductor and electronics assembly industries worldwide. ASM Pacific Technology was started in 1975 and with the company's market cap sitting at HK$32.84b, it falls under the mid-cap category. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you're heading to the bottom of the cycle.
ASM Pacific Technology currently has HK$3.07b 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 22.26x, ASM Pacific Technology produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its cash flows from operations copiously covers it debt by 72.2%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning 522's financial strength will continue to let it thrive in a fickle market.
522’s annual earnings growth rate has been positive over the last five years, with an average rate of 29.0%, outperfoming the industry growth rate of 12.9%. It has also returned an ROE of 22.9% recently, above the industry return of 7.2%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in ASM Pacific Technology as an investment over the long run.
Next Steps:
Based on these three factors, 522 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 522, 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 522’s future growth? Take a look at our free research report of analyst consensus for 522’s outlook.
- Valuation: What is 522 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 522 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.