Consider These Factors, Then Buy Equinor ASA (OB:EQNR)

When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Equinor ASA 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 Equinor

Equinor ASA, an energy company, explores for, produces, transports, refines, and markets petroleum and petroleum-derived products, and other forms of energy in Norway and internationally. Formed in 1972, and run by CEO Eldar Sætre, the company size now stands at 20.53k people and with the stock's market cap sitting at kr581b, it comes 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.

Currently Equinor has US$26b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Equinor generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 111x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by 67%, 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 EQNR's financial strength will continue to let it thrive in a fickle market.

EQNR’s profit growth over the previous five years has been positive, with an average annual rate of 27%, outperfoming the market growth rate of 14%. It has also returned an ROE of 18% recently, above the industry return of 9.5%. Characteristics I value in a long term investment are proven in Equinor, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Based on these three factors, EQNR 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 EQNR, I highly urge you to understand more about the company, in particular, in these following areas:

1. Future Outlook: What are well-informed industry analysts predicting for EQNR’s future growth? Take a look at our free research report of analyst consensus for EQNR’s outlook.
2. Valuation: What is EQNR 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 EQNR is currently mispriced by the market.
3. 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 editorial-team@simplywallst.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.