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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as ICU Medical, 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.
ICU Medical, Inc. develops, manufactures, and sells medical devices used in vascular therapy, critical care, and oncology applications worldwide. Established in 1984, and led by CEO Vivek Jain, the company employs 6.80k people and with the company’s market cap sitting at US$5.1b, it falls under the mid-cap category. 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 US$1.9m debt on its books, ICU Medical 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 305x, ICU Medical 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 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 ICUI’s financial strength will continue to let it thrive in a fickle market.
ICUI’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 15%, outpacing the industry growth rate of 14%. Characteristics I value in a long term investment are proven in ICU Medical, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. ICU Medical tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for ICUI’s future growth? Take a look at our free research report of analyst consensus for ICUI’s outlook.
- Valuation: What is ICUI 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 ICUI 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.