When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Brady Corporation 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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Brady Corporation manufactures and supplies identification solutions (IDS) and workplace safety (WPS) products to identify and protect premises, products, and people in the United States and internationally. Founded in 1914, and headed by CEO J. Nauman, the company provides employment to 6.20k people and with the market cap of US$2.3b, it falls under the mid-cap category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
With US$54m debt on its books, Brady has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. Brady generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 216x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by over 2x, much higher than the safe minimum of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning BRC’s financial strength will continue to let it thrive in a fickle market.
BRC’s annual earnings growth rate has been positive over the last five years, with an average rate of 69%, beating the industry growth rate of 19%. It has also returned an ROE of 12% recently, above the market return of 13%. Brady’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, BRC 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 BRC, 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 BRC’s future growth? Take a look at our free research report of analyst consensus for BRC’s outlook.
- Valuation: What is BRC 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 BRC 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.