When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Sanderson Farms Inc 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.
Sanderson Farms, Inc., an integrated poultry processing company, produces, processes, markets, and distributes fresh, frozen, and prepared chicken products in the United States. Established in 1947, and headed by CEO Joe Sanderson, the company currently employs 14.67k people and with the market cap of US$2.4b, it falls under the mid-cap group. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.
With zero debt on its balance sheet, Sanderson Farms isn’t constrained to debt obligations and covenants, which can be burdensome during financial downturns. Highly-levered companies have to maintain a cash cushion to meet near-term interest payments as well as meet unforeseen circumstances. With no lenders’ needs to tend to, Sanderson Farms enjoys financial flexibility and independence – an invaluable position to be in during bear markets. Its current cash position of US$288m is enough to meet near-term liabilities, placing it in a financially robust standpoint in the face of uncertainty.
SAFM’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 8.1%, beating the industry growth rate of 8.1%. It has also returned an ROE of 12% recently, above the market return of 15%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Sanderson Farms as a long-term hold.
Next Steps:Sanderson Farms makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Sanderson Farms? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for SAFM’s future growth? Take a look at our free research report of analyst consensus for SAFM’s outlook.
- Valuation: What is SAFM 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 SAFM 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 email@example.com.