5 Low-Debt Stocks With Alluring Prospects

Since time immemorial, investors have been aware of the dangers of debt. Though it appears to make sense when rates are low and it appears to increase liquidity, extreme dependence on debt financing raises the risk profile of companies.

Consequently, companies with low debt levels have more options to spend cash to fund acquisitions or pursue other growth avenues in the future.

Perks of Low Debt  

When the economy turns sour, companies with lower debt on their books are affected less than firms carrying heavy liabilities. Lower debts make it easier for companies to tackle the situation and remain afloat during turbulent times.

Debt-free companies remain financially more stable in a high-rate environment. As their cash outflow in the form of interest payment is limited, these firms are able to keep their costs at a minimum and face little risk from interest rate changes as they are insulated from any rise in borrowing costs.

Low interest payment outflow also leaves more cash on hand for the company. Based on its growth potential, the firm can utilize the surplus cash accordingly. Management can either use the funds toward practical business opportunities for creating shareholder value, or distribute it through dividends. Further, a healthy liquidity position with low debt improves the stock’s ability to withstand the pressure exerted by an interest-rate hike.

Nevertheless, this does not mean that all debts are bad; and some of them can be pretty useful to create better value. But generally, from an investor’s perspective, the lower the debt, the more attractive the stock is.

5 Low-Debt Growth Stocks

Based on the Zacks stock screener and our style score system, we have selected 5 buy-rated low-debt stocks with Growth Scores of “A” and debt /total capital ratios of less than 0.1. This system gets you to stocks with bright prospects and attractive valuations.

Please note that the Zacks Style Score takes into account all valuation metrics to give us an actionable standard that helps identify stocks truly trading at a discount to intrinsic value. Back-tested results show that stocks with Growth Scores of ‘A,’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy), handily beat other stocks.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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