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Low Debt Companies Are Champs For Investors Amid Ongoing Fed Talks

Uncertainty against the backdrop of market volatility has made it increasingly difficult for investors to navigate the market, especially when they’re seeking out low-debt companies that can provide them with a long-term performance strategy. Yet, it’s not possible to say whether or not all companies will continue to hold down a lower debt-to-cash ratio in the coming months.



Markets have been torn on whether the Federal Reserve will continue to keep rates elevated for much of the year, as Fed Chair, Jerome Powell is set to appear before Congress this week as part of his semi-annual testimony on the central bank’s tightening monetary policy.

Since the start of 2022, the Fed has raised its benchmark interest rate eight times, with the most recent hike of 0.25% at the start of February 2023. The move pushed up borrowing rates to a target range of 4.5% – 4.75%.

Investors and markets are still somewhat in the dark about what the Fed has left in its arsenal, as it tries to pull down the cost of living, without bringing the economy down with it.

Many suggest that the central banks’ hawkish intervention has been a recipe for prolonged economic difficulties, as a possible soft landing could still be months off from the Fed’s planned timeline.

Ongoing increases and the rising cost of debt

Higher interest rates were not only felt by a large portion of consumers who noticed their disposable income shrink as the cost of their debt tilted upwards in the last several months.

Inflationary conditions led consumers to heavily rely on their credit to cover costs and pay for necessities. Economic turbulence propelled consumer credit card debt to spike by 18.5% by the end of 2022, after hitting a record $930.6 billion. Average consumer balances rose to $5,805 over the same period according to a TransUnion report.

Companies and businesses that took out loans during the easy and free money period to boost their performance, invest in new developments, pay for dividends or finance stock buybacks have been hit with a two-blow punch.

With consumer spending slowing, and interest rates experiencing a steady rise, companies with low debt-to-cash ratios were in the minority, compared to those that took out hefty loans to finance their growth during the free cash era. On the market, this showed as the S&P Global long-term debt increased by 160.82% between 2021 and 2022.

Having debt can help companies develop new products and services, or even boost their earnings on the stock market. But when debt becomes expensive to repay or having too much of it can quickly eat into company profits and their bottom line performance.

Low debt stock picks for investors

Here’s a rundown of companies that provide investors with a bit of ease, as their debt-to-cash flow remains steady amid ongoing interest rate hikes.

SEI Investments Co

SEI Investments (NASDAQ: SEIC) defines itself as a “global provider of investment processing, investment management, and investment operations solutions.”

Overall net income stood at $112.2 million for Q4 2022, a decrease of 23% from the same period a year before. Earnings per share (EPS) was also slightly down by 9% year-over-year (YoY), marking an EPS of $3.46 per share. The $0.83 per share outpaced the Zacks Consensus Estimate of $0.79 in the fourth-quarter results.

On the stock market however, SEIC has remained steady despite greater market volatility, as stock performance has grown 2.01% year-to-date (YTD), and marked a 7.91% increase in performance over the last 12 months. The last two years – 2021 to 2022 – also marked a positive increase in the company’s net income in cash.

Monolithic Power Systems Inc

National power circuits provider, Monolithic Power Systems (NASDAQ: MPWR) holds a strong track record, with an EBITDA rate of 0.7%, a change of 43.1% YoY. Annual revenue was up by 48.55% in 2022, with the company bringing in more than $1.79 billion in revenue and $437.67 million in total net income.

MPWR has a steady cash flow and holds more than $1.6 billion in equity. On the stock market, performance has been extraordinary, to say the least, with prices up by 44.98% since the start of the year. YoY prices have been steadily up and down, but for the better half of the last 12 months, MPWR has seen a growth of 30% on the stock market.

Amdocs Limited

Amdocs (NASDAQ: DOX) is a multinational company that specializes in software development services and financial services. As a digital enterprise, Amdocs holds an EBITDA of 12.64%, a slight increase from last year according to its annual reports.

Growing revenue has also helped the company’s stock perform more sufficiently, with DOX up 12.87% over the last 12 months. YTD prices are down by 1.01%, a marginal decline compared to other household names that operate in the same category.

During its first-quarter earnings call in 2022, Amdocs managed to beat its EPS estimates for a third time, and also surpassed the Zack Consensus Estimate with quarterly earnings of $1.45 per share.

Monster Beverage Corporation

The beverage and consumer staples giant, Monster Energy (NASDAQ: MNST) has posted some strong gains in recent quarters, with an EBITDA of 2.3%, seeing a slight 0.5% increase from 2021.

Annual revenue increased by double digits, and the company recently launched a new range of alcoholic beverages inspired by its flagship range of energy drinks. On the other hand, MNST performance has been steady, seeing both YTD and YoY performance tilt upwards.

There is still some speculation over whether the company could navigate the ongoing economic difficulties, after posting lower-than-expected earnings for Q1 2023.

Intuitive Surgical

Developer of medical surgical devices, Intuitive Surgical (NASDAQ: ISRG) is part of the NASDAQ 100 and the S&P 500, and holds an EBITDA of 4.8%, seeing a double-digit decrease between 2021 and 2022.

Annual revenues have remained positive, with a slight decrease in total net income for last year. ISRG prices have remained modest, even though performance has been slowing in recent months. YTD prices are down by 11.59%, as the company posed a less-than-overwhelming sales outlook earlier in the year, which may have left investors somewhat apprehensive.

Final thoughts on low debt companies

Uncertainty against the backdrop of market volatility has made it increasingly difficult for investors to navigate the market, especially when they’re seeking out low-debt companies that can provide them with a long-term performance strategy.

Yet, it’s not possible to say whether or not all companies will continue to hold down a lower debt-to-cash ratio in the coming months, as many are seeking revenue streams to help boost their bottom line performance against broader market problems.


(Featured image by pasja1000 via Pixabay)

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Jacob Wolinsky is the founder and CEO of ValueWalk. What started as a hobby ten years ago has turned into an acclaimed financial media empire with over five million views a month. Before doing ValueWalk full time, Jacob worked as a private equity analyst, small-cap stock analyst, and in hedge fund business development. Jacob lives with his wife and four kids in Passaic, New Jersey.

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