The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like Concho Resources Inc. at a discount.
Concho Resources Inc., an independent oil and natural gas company, engages in the acquisition, development, and exploration of oil and natural gas properties in the United States. Established in 2006, and run by CEO Timothy Leach, the company provides employment to 1.50k people and with the market cap of US$21b, 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.
Currently Concho Resources has US$4.4b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 47.15x, Concho Resources produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its cash flows from operations copiously covers it debt by 59%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means CXO is financially robust in the face of a volatile market.
CXO’s annual earnings growth rate has been positive over the last five years, with an average rate of 27%, beating the industry growth rate of 7.1%. It has also returned an ROE of 12% recently, above the market return of 12%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Concho Resources as an investment over the long run.
Next Steps:Based on these three factors, CXO 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 CXO, 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 CXO’s future growth? Take a look at our free research report of analyst consensus for CXO’s outlook.
- Valuation: What is CXO 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 CXO 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.
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 email@example.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.