Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Balchem Corporation has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
Balchem Corporation develops, manufactures, and markets specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical, medical sterilization, and industrial markets in the United States and internationally. Established in 1967, and run by CEO Theodore Harris, the company size now stands at 1.14k people and with the company’s market capitalisation at US$3.2b, we can put it in the mid-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.
Currently Balchem has US$140m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Balchem generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 14.82x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by 83%, which is higher than the bare minimum requirement of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
BCPC’s annual earnings growth rate has been positive over the last five years, with an average rate of 14%, outpacing the industry growth rate of 9.1%. It has also returned an ROE of 11% recently, above the market return of 15%. Characteristics I value in a long term investment are proven in Balchem, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Balchem 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 Balchem? 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 BCPC’s future growth? Take a look at our free research report of analyst consensus for BCPC’s outlook.
- Valuation: What is BCPC 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 BCPC 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 firstname.lastname@example.org. 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.