Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Hormel Foods Corporation. Looking at its size, financial health and track record, I believe there’s an opportunity with Hormel Foods during these volatile times.
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Hormel Foods Corporation produces and markets various meat and food products in the United States and internationally. Started in 1891, and headed by CEO James Snee, the company employs 18.70k people and has a market cap of US$21b, putting it in the large-cap stocks 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.
With US$625m debt on its books, Hormel Foods has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With an interest coverage ratio of 58.33x, Hormel Foods 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 180%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning HRL’s financial strength will continue to let it thrive in a fickle market.
HRL’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 12%, outperfoming the industry growth rate of 7.4%. It has also returned an ROE of 17% recently, above the industry return of 10%. Hormel Foods’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, HRL 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 HRL, 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 HRL’s future growth? Take a look at our free research report of analyst consensus for HRL’s outlook.
- Valuation: What is HRL 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 HRL 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.