When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as Equity Commonwealth 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.
Want to help shape the future of investing tools and platforms? Take the survey and be part of one of the most advanced studies of stock market investors to date.
Equity Commonwealth (NYSE: EQC) is a Chicago based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties in the United States. Established in 1986, and run by CEO David Helfand, the company currently employs 54.00 people and with the market cap of US$3.6b, it falls under the mid-cap group. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.
With US$280m debt on its books, Equity Commonwealth has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. With interest income higher than interest payments, meeting these short-term debt obligations isn’t a problem for Equity Commonwealth. Furthermore, its cash flows from operations copiously covers it debt by 31%, 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.
EQC’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 52%, outperfoming the industry growth rate of 22%. It has also returned an ROE of 7.4% recently, above the industry return of 6.7%. Equity Commonwealth’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: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. Equity Commonwealth 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 EQC’s future growth? Take a look at our free research report of analyst consensus for EQC’s outlook.
- Valuation: What is EQC 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 EQC 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.