Whether you're reading a newspaper, a news website, or watching the news on TV, it's hard to get away from the topic of debt -- federal debt, local and state government debt, student-loan debt, personal debt -- it's all around us and is generally thought of in less than desirable terms.
The thinking of many is that we would all be better off with less debt. I am not here to argue that point, but some companies take that philosophy to heart. They conduct their business not just with limited debt, but also without any debt at all. No question, risk is reduced when a company does not use leverage (of course, upside potential is reduced as well), which is why many investors believe that the less debt a company has, the better.
Wall Street leaders such as Benjamin Graham and Warren Buffett eschew debt; it is hard to argue with the likes of these investment mavens. Which is why, using automated strategies I created that mirror the investment approaches of some of Wall Street's greats, I screened for companies that are doing well but have absolutely no long-term debt. If you think debt is bad or at least too risky, these three companies should be of interest.
For-profit higher-education companies have been getting bad press lately because of students who get government-backed loans but never get a degree or otherwise cannot pay back these loans. DeVry (DV) is one such college, and its stock is trading near its 52-week low. That could be viewed as bad (the stock is out of favor with investors) or good in that the stock is now well priced.
Founded in 1931, the company has more than 95 locations in the U.S. and Canada, as well as online courses. As of June 30, 2011, more than 146,000 students were enrolled at DeVry.
The strategy I base on Peter Lynch's writings indicates it is smart to buy DeVry now. It likes the fact the company has no debt, and likes the company's price-to-earnings-to-growth ratio (price to earnings relative to growth, a measure of how much the investor is paying for growth). A PEG of 1.0 or less is acceptable and below 0.50 is great. DeVry, with a modest price-to-earnings ratio of 6.47 and a growth rate of 44.6%, has a great PEG of 0.15.
CH Robinson Worldwide (CHRW) is liked by my Warren Buffett-based strategy. This is one of the world's largest third-party-logistics providers that offers transportation and logistics to customers with freight needs. Of course, it has no debt, which the Buffett strategy likes. Being one of the major players in its industry is also in its favor, as is its history of increasing earnings per share in each of the past 10 years. In addition, the Buffett strategy projects what the investor's annual rate of return will be over the next decade, and Robinson is expected to produce a respectable 12.9% rate of return.
FactSet Research Systems (FDS) is a major provider of financial and economic data and analytics to the investment community. In business since 1978, FactSet's services are used by thousands of publications, including the Wall Street Journal, the Associated Press and Dow Jones Newswires. Like CH Robinson, FactSet is a favorite of my Buffett-based strategy. The company has no debt, is a major player in its market, has generated increasing EPS in each of the past 10 years, and it is predicted to produce a 16.9% rate of return to investors.
If you don't like debt, these companies could be an ideal fit for your portfolio.
