Zero Debt Companies To Invest In 2015

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Feb 24, 2015

As an investor, you should be careful while investing in stocks under different sectors. You might be tempted to invest in stocks that pay out high dividends, but what you also need to check is whether these companies have any debts or not. If a company has huge debts, you must strictly stay away from it, however high its dividends are. Such companies cannot be trusted upon to pay out high dividends in the future as the cash flow that they generate would be used for settling debts. A company that pays out a reasonable rate of dividend and has very little debts is still a better choice. However the best choice would be a company with absolutely no debt at all. Are there any companies like these? If yes, which ones are best in terms of growth? Read on to know more.

High on growth and cash flow

Monster Beverage (MNST, Financial) is one of the first names that come to mind when we talk about some of the best and most promising no-debt companies. One of the major successes of the beverage giant is the diversification of its products. Apart from dairy drinks like coffee and tea, Monster is also into other drinks like energy drinks, iced teas, healthy protein drinks and more. During 2014, the company benefited immensely because one of the giants in the carbonated beverage segment, Coca-Cola (KO, Financial), picked up 16.7% stake in it. Through this deal, Monster grew all over the world phenomenally, thanks to the overwhelming distribution network of Coca Cola. Every year, Monster generates an average of $300 million worth of cash flow and around $2 billion cash on hand, which are positive factors, considering the fact that the company has absolutely no long-term debts at all. The share price trend of the company, as shown below, indicates its growth rate over the last few months.

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Retailer with a change

The retail industry is known to be one of the most volatile sectors in the stock market, because it is subject to changing tastes and preference of the end customers. What is fashionable today becomes outdated tomorrow. Many retailers are struggling to sustain in this fluctuating market as they don’t have enough facilities to stay abreast of the market trends. This is where Michael Kors Holdings (KORS, Financial) stands to gain. The leading luxury retail brand is a separate class of its own. It has a dedicated team that watches the latest fashion trends among consumers and a highly passionate management team that introduces the same internally as well. On an average, the luxury retailer grows at about 20% per year. It enjoys great reputation among its customers and is one of the most-respected brands on earth today. Michael Kors generated just about $27 million cash flow during 2011, but this grew at a staggering rate and was around $235 million and $450 million during 2012 and 2013 respectively. Share prices are currently trading at a discount as the market is overreacting to the latest earnings of the company; hence analysts believe that investing in these shares now is the right decision to take. Michael Kors is free from long-term debts and therefore will use up its cash flow fully for developing the business, adding more value to shareholders. Stock movement of the company for the last few months is shown below:

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Conclusion

Both the stocks mentioned above are not paying out any dividends to investors. Still, they are considered to be some of the best investible stocks because of two reasons. One is their rate of growth and the other is lack of debt in their balance sheet. The absence of debt signifies that the companies have many productive ways to use the free cash flow that they generate enormously year and after year. With a huge surplus on hand, in due course of time, a possibility of dividend declaration cannot be ruled out. Hence in every way, these stocks are only aimed at improving the value of their investors.