When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Koninklijke DSM N.V. 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.
Koninklijke DSM N.V., a science-based company, engages in health, nutrition, and materials businesses worldwide. Established in 1902, and headed by CEO Feike Sijbesma, the company now has 20.93k employees and with the company’s market cap sitting at €12b, it falls under the large-cap category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.
Koninklijke DSM currently has €2.7b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Koninklijke DSM generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 12.69x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 49%, above the safe minimum of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means DSM is financially robust in the face of a volatile market.
DSM’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 54%, overtaking the industry growth rate of 18%. It has also returned an ROE of 13% recently, above the industry return of 12%. Characteristics I value in a long term investment are proven in Koninklijke DSM, 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. Koninklijke DSM 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 DSM’s future growth? Take a look at our free research report of analyst consensus for DSM’s outlook.
- Valuation: What is DSM 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 DSM 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 firstname.lastname@example.org.