Debt is for Suckers - Investment Ideas

Policy makers in Washington D.C. have the stock market, and global economy for that matter, fixated on the U.S. debt ceiling. We are all aware of the problem. The U.S. can't borrow any more money unless it raises the maximum amount of debt it is allowed to carry. If it doesn't we default, basically.

Our nation's reliance on debt has been going on for decades. On the individual level, we have seen debts from credit cards to mortgages spiral out of control, contributing to the worst recession in most people's life time.

Need vs. Want

Until the recent turmoil, people and our nation had no trouble going into debt up to our eyeballs to buy things we "needed". But that has quickly changed. So are companies the same way?

Debt can be good for a company. It allows earnings to be spread around to fewer investors, compared to equity. But that leverage comes with additional risk. You don't owe shareholders anything, but you do owe your creditors. And if you don't pay, you are in trouble.

It is a balance of risk/reward that goes back to the dawn of time. But, in this cycle of deleveraging, why shouldn't we focus on companies that don't have to cater to creditors?

No Debt, No Worries

You can argue that not taking debt may be limiting a companies growth prospects, but in this skittish economy, I'll gladly take a company with a clean balance sheet over one that essentially living paycheck to paycheck. Save the risk taking for another time.

4 Stocks that Don't Need a Debt Ceiling

I almost don't want to include it because the story has been beaten to death. But the fact that Apple (AAPL) is on pace to become the biggest company in the world is a fascinating story. And to do that with no debt? That is just outstanding. Comparatively, the current king of the hill, Exxon Mobile (XOM), carries billions in debt and doesn't show a fraction of the growth prospects of the revolutionary tech-gadget company. No need to elaborate on AAPL, you all know the story there.

But how about Carbo Ceramics (CRR)? The earnings outlook for this Zacks #2 Rank (Buy) just keeps getting better and better, and they don't need to borrow money for the growth.

Carbo supplies ceramic proppants used by natural gas and oil drillers. In just the past 3 months, the full year consensus estimate for this year jumped 98 cents, to $5.37. A 56% growth rate. Next year's estimates are up $1.26, to $6.94 for another 29 percentage points of growth.

Any volatility in the energy sector can be weathered easily because they can use their revenue on operations and growth, rather than paying off the bill collectors.

AeroVironment, Inc. (AVAV) is another example. The company that makes unmanned aircraft and energy systems operates with a zero in the long-term debt column.

Shares are currently a Zacks #2 Rank (Buy) and are expected to grow steadily at 11% per year through fiscal 2013. Estimates keep rising and you won't have to take out a loan to pick up this stock. AVAV trades with a PEG ratio of 1.1, meaning the growth is priced at a solid value.

Ironically MasterCard (MA) doesn't have any debt, well no long-term debt. They do more than just offer credit cards, like but that is what they are best known for.

Estimates for this Zacks #2 Rank (Buy) just keep moving higher and are now projecting a 21% growth rate this year. Earnings should growth another 18% in 2012. Shares are also trading with a PEG of 1.1, showing some value. The company reports earnings next week. Could it be the sixth consecutive surprise?

Plenty More

These are just a few of the many companies out there that operate with a debt-free balance sheet. You can argue that they might be missing out on even higher growth rates, but I'd say the sense of security is worth it.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service

APPLE INC (AAPL): Free Stock Analysis Report

AEROVIRONMENT (AVAV): Free Stock Analysis Report

CARBO CERAMICS (CRR): Free Stock Analysis Report

MASTERCARD INC (MA): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

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