As US debt grows, here are 23 debt-free companies
Wall Street doesn't seem to care if companies are carrying debt on their balance sheets – as long as they are putting that money to work, perhaps even towards a dividend or buyback.
CNBC research shows that only about 23 companies in the S&P 500 have managed to stay debt-free. Yet, when looking at the year-to-date stock performance, only eight of these names are outperforming the S&P 500. Those companies are Chipotle, MasterCard, Bed Bath & Beyond, Paychex, Visa, Akamai, Robert Half and Forest Labs. Out of these, Mastercard, Paychex, Visa and Robert Half all pay a dividend.
Lazard Capital's Managing Director Art Hogan says having no debt isn't necessarily a big plus for a company and that now it is actually a favorable time for companies to take on debt. "It makes sense for companies to take on reasonable levels of debt when it is affordable and interest rates are relatively low. Companies continue on the whole to have reasonable debt-to-equity ratios and most of the selling pressure that we have seen in this current uncertainty has been agnostic of debt levels and more of the risk off sell all stocks variety," says Hogan.
|Ticker||Company||Price||YTD % Chg.||Sector|
|BBBY||Bed Bath & Beyond||76.86||37.5||Cons. Discretionary|
|RHI||Robert Half Intl.||40.2||26.3||Industrials|
|FRX||Forest Labs.||43.86||24.2||Health Care|
|TROW||T. Rowe Price||75.59||16.1||Financials|
|MNST||Monster Beverage||56.78||7.5||Cons. Staples|
|NWSA||News Corp.||16.67||5.5||Cons. Discretionary|
|URBN||Urban Outfitters||36.27||-7.9||Cons. Discretionary|
|ISRG||Intuitive Surgical||397.86||-18.9||Health Care|
Although Oppenheimer's Chief Market Strategist John Stoltzfus says the high focus on Washington's debt issues has made investors more selective and cognizant of the debt a company carries."I think you'll start to see more people on the street putting in to the consideration how companies are actively managing their debt levels," says Stoltzfus.
As for the 23 debt-free companies, about half are from the technology sector. In fact, technology has the lowest percent debt-to-total assets ratio. standing at about 16 percent. Other sectors that don't carry a whole lot of debt include Financials (23 percent), Energy (24 percent) and Industrials (26 percent). On the flip side, sectors like Telecom, Utilities and Consumer Staples have on average, the highest percentage of debt to total assets ratio, at 46 percent,36 percent, and 34 percent, respectively. Analysts say some companies in these defensive sectors, which tend to generate steady cash, on average offer a high dividend yield and thus take on debt to funds these payouts.