When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as WestRock Company 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.
WestRock Company manufactures and sells paper and packaging solutions for the consumer and corrugated markets in North America, South America, Europe, Australia, and Asia. With a current market cap of US$14.46b, we can put WRK in the large-cap stocks category Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.
With US$6.73b debt on its books, WestRock has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. WestRock generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 5.48x, which is well-above the minimum requirement of 3x. Moreover, its cash flows from operations copiously covers it debt by 27.03%, 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.
WRK’s profit growth over the previous five years has been positive, with an average annual rate of 19.61%, outpacing the industry growth rate of 4.94%. It has also returned an ROE of 16.22% recently, above the industry return of 15.60%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in WestRock as a long-term hold.
Next Steps:Based on these three factors, WRK 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 WRK, 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 WRK’s future growth? Take a look at our free research report of analyst consensus for WRK’s outlook.
- Valuation: What is WRK 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 WRK 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.