When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as ITC 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. See our latest analysis for ITC
ITC Limited engages in fast moving consumer goods, hotels, paperboards and specialty papers, packaging, agri, and information technology (IT) businesses worldwide. Established in 1910, and led by CEO Sanjiv Puri, the company currently employs 25,787 people and with the market cap of ₹3.32T, it falls under the large-cap 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.
ITC currently has ₹288.50M 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 170x, ITC produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its cash flows from operations copiously covers it debt by over 2x, much higher than the safe minimum of 0.2x. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means ITC is financially robust in the face of a volatile market.
ITC’s profit growth over the previous five years has been positive, with an average annual rate of 8.23%, outpacing the industry growth rate of 5.49%. It has also returned an ROE of 21.75% recently, above the market return of 10.04%. ITC’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, ITC 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 ITC, 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 ITC’s future growth? Take a look at our free research report of analyst consensus for ITC’s outlook.
- Valuation: What is ITC 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 ITC 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.