Why Investors Should Run Towards Pentair plc (NYSE:PNR)

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

Check out our latest analysis for Pentair

Pentair plc provides various smart water solutions worldwide. The company was established in 1966 and with the market cap of US$7.5b, it falls under the mid-cap group. 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.

Pentair currently has US$780m 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 16.48x, Pentair produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its operating cash flows amply covers its total debt by 82%, above the safe minimum of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.

PNR’s annual earnings growth rate has been positive over the last five years, with an average rate of 5.0%, outperfoming the industry growth rate of 3.7%. It has also returned an ROE of 32% recently, above the industry return of 13%. Characteristics I value in a long term investment are proven in Pentair, and I can continue to sleep easy at night with the stock as part of my portfolio.

Next Steps:

Based on these three factors, PNR 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 PNR, 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 PNR’s future growth? Take a look at our free research report of analyst consensus for PNR’s outlook.
2. Valuation: What is PNR 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 PNR 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.

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.