Going long in this volatile market can be stressful. You might be able to reduce that stress if you invest in companies with no debt, especially if they're performing well in other areas. 

Direct Competition Impact

The Federal Reserve has kept interest rates at record lows for years, which has led to excessive borrowing in order to fuel growth. Eventually, either interest rates will move higher and these companies will be forced to pay off these debts or the demand for the company’s products and services will diminish in a deflationary environment. The Federal Reserve is keeping rates low in order to fight deflation. (For more, read: How Interest Rates Affect the U.S. Markets.)

This eventual deleveraging process for many companies will be bad news for most, but not for all. For example, let’s say there are three companies in the same industry. We’ll call them Company A, Company B and Company C. Company A and Company B took advantage of low record-low interest rates in order to fuel top-line growth and/or to buy back stock to boost the company’s share price. The eventuality is that these companies must allocate more capital to pay off debts or risk insolvency. Paying off debt is obviously the lesser of two evils.

If Company A and Company B are allocating more capital to debt repayment, then they’re allocating less capital to capital expenditure, or CapEx. This, in turn, will make them less competitive and increase market share for Company C, which has no debt to deleverage. Company C might not reap the rewards immediately because deflation tends to bring almost everything down with it, but it will weather the storm better than its peers and come out stronger on the other side. Keep this in mind when you look at the stocks below. There are no guarantees that these companies will experience market share gains, but they have a better shot at gaining share than some of their peers. (For more, see: How Interest Rates Affect the Stock Market.)

No Debt Concerns

A stellar balance sheet is indeed a positive, but you never want to look at just one metric. The following metrics have been included in the chart below: cash position, one-year stock performance, operating cash flow (over the past year), dividend yield, revenue and net income. A strong cash position combined with no debt adds value, which is why that the company will look more appealing to potential acquirers.

For one-year performance seeing a gain in a volatile market is a positive, but when it comes to investing in no-debt companies it’s more of an investment than a trade. For operating cash flow, seeing strong cash flow generation is a big positive when combined with plenty of cash and no debt. This makes for a fiscally healthy company. Dividend yield has been included for your convenience. Since these companies have no debt and generate strong cash flow, the dividends should be safe. For revenue and net income, if the company has showed consistent gains over the past three fiscal years, you will see a “Y.” If the company has not shown consistent gains over the past three years, you will see an “N.” (For more, see: Introduction to Fundamental Analysis.)

 

Cash Position

1-Year Stock Performance

Operating Cash Flow

Dividend Yield

Revenue

Net Income

SEIC

$679.66 million

-8.19%

$391.46 million

1.28%

Y

Y

DOX

$1.19 billion

9.92%

$763.05 million

1.35%

Y

Y

EXPD

$807.48 million

-2.20%

$564.71 million

1.50%

Y

Y

NHTC

$104.91 million

57.97%

$81.33 million

0.62%

Y

Y

CMG

$663.20 million

-25.29%

$683.32 million

N/A

Y

Y

PAYX

$476.40 million

3.57%

$910.40 million

3.17%

Y

Y

FIT

$664.48 million

-52.16%

N/A

N/A

Y

Y

ISRG

$1.56 billion

15.43%

$771.90 million

N/A

N

N

MNST

$2.92 billion

-3.46%

N/A

N/A

Y

Y

GRMN

$1.05 billion

-19.91%

$280.74 million

5.14%

N

N

The Bottom Line

If you’re looking for a company with no debt, stock appreciation over the past year, that pays a dividend and has delivered consistent revenue and net income growth over the past three fiscal years, you might want to begin your research with DOX, NHTC and PAYX. (For more, see: The 5 Fastest Growing Companies in the S&P 500.)

Dan Moskowitz owns shares of FIT. He doesn’t have any positions in any of the other stocks mentioned in the article.  

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