Stock market volatility: Is this large-cap worth a closer look?
Shares in Charter Hall (ASX:CHC) are currently trading at A$16.3 but a key question for investors is how much a prolonged spell of economic uncertainty will impact the price.
The answer comes down to judging whether Charter Hall is well placed to ride out economic shocks. To do that, you have to look at its profile to see where its strengths lie.
The promising news is that it shows signs of scoring well against some important financial and technical measures. In particular, it has areas of exposure to two influential drivers of investment returns: high quality and strong momentum.
Here is why that's important...
Why quality stocks pay off
When it comes to stock analysis, company quality tends to show up in high profitability and strong industry-leading margins. These kinds of firms are stable, growing and often have accelerating sales and earnings. They also have strong and improving financial histories with no signs of accountancy or bankruptcy risk.
One of the interesting quality metrics for Charter Hall is its 5-year Return on Capital Employed, which is 15.7%. Good, double-digit ROCEs can be a pointer to companies that can grow very profitably.
Harnessing the power of momentum
Positive momentum trends show up in share prices and earnings growth. You can find the clues in stocks that are trading close to their 52 week high prices and outperforming the market. They’ll often be beating broker estimates and getting forecast upgrades and recommendation changes.
This appears to be true at Charter Hall, where the share price has seen a 25.6% return relative to the market over the past 12 months. Market volatility and economic uncertainty can be a major drag on momentum, but previously strong stocks can be quick to recover when confidence returns.
In summary, good quality and momentum are pointers to some of the best stocks on the strongest uptrends. This combination of factors can be a clue to finding shares that can deliver solid investment profits over many years.
In good times, these shares can become expensive to buy. But in volatile markets, there may be chances to buy them at cheaper prices.
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