You Should Not Miss These Cash Rich & No-Debt Stocks
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you see past several years, you will note that the companies that have gone out of business are those which had a lot of debt on their financials. Being debt free is one of the many criterion investors use while selecting their next stock pick. These stocks are equally preferred by income investors who like to invest in high dividend yielding stocks (read my picks on dividend stocks here). While making their choice, invetsors should also take into consideration their performance in the longer horizon. Keeping this in mind, I have picked up three stocks that have zero debt on their balance sheets. Also, they hold good amounts of cash and liquid assets to fund their acquisitions and expansions. This strategy has helped them focus their funds on reinvestment activities that drive earnings growth. Let's discuss these stocks in detail.
Citrix Systems (NASDAQ: CTXS)
The IT services provider, Citrix recently reported its 4Q12 results beating the analysts’ estimates. The revenue jumped by ~19% to ~$740 million on y/y basis, which is higher than the street estimate of ~$710 million. The highest contributor to the revenue was the license updates and maintenance which increased by ~22% from the last year. Talking about the regional performance, the pacific region stood out as a winner with a contribution of around 52% to the company's total revenue. The company posted an EPS of ~$0.90 which again surpassed the average analyst’s estimate of ~$0.84.
Moving into 2013, the virtualization trends in the industry remain stable. Citrix is adapting a broader range of solutions in its portfolio to capitalize this opportunity. In its last quarter, the company launched its next phase for its project Avalon, which is the company's initiative to provide Windows apps and desktops with a cloud service. In this phase, the company came up with two new releases Excalibur and Merlin. Excalibur will focus on various advancements to simplify the transition process of the mobile-cloud era of big enterprises. On the other hand, Merlin will be more into Windows as a cloud service with new upgrades and features. I remain optimistic with this move by the company and expect the benefits to flow from mid-2013. Moreover, the corporate adoption of Windows 7 and 8 would help in the success of project Avalon. I expect the growth in sales for XenDesktop for 2013 to be ~13% and the license growth for desktops to be around 7%. On the long-term basis, the earnings CAGR would be ~30% which provides a good investing opportunity.
Bed Bath & Beyond Inc. (NASDAQ: BBBY)
The specialty retailer posted its 3Q12 results with EPS and revenue ahead of the analyst predictions. Bed Bath reported EPS of $1.03 against the estimates of $1.02, which increased by ~8.4% from the last year. Similarly, the net sales for the quarter were ~$2.7 billion, up by ~15% y/y and higher than the estimate of ~$2.25 billion. However, the company's comp store sales saw an increase of just ~1.7% as compared to the increase of ~4.1% in the last year's same quarter. This was mainly due to the Hurricane Sandy which impacted the company's sales in this quarter. However, on the whole net income moved up by ~23% y/y which surpassed the average increase of ~11% from the last five quarters.
From the last few years, the company has started facing stiff competition from the online channels. Bed Bath also has its own e-commerce segment but its online sales contribute just around 1% to its total sales. Therefore, the company has its plans to focus on its e-commerce platform and on maximizing its online sales. Bed Bath aims at upgrading its online portal as well as at setting up a new distribution and IT data center. These initiatives would increase the company's capex in the short run with ~$300 million expected for FY12. However in the long run, these steps will start paying off which would provide an upside of ~5% to the stock price.
Apart from this another positive aspect for the company is its strong balance sheet with no debt along with regular buy backs. In 3Q12, it purchased ~3.1 million shares for ~$191 million and the remaining ~$223 million is authorized for further buy back till FY12. Moreover the company also approved a new ~$2.5 billion shares repurchase program which will start after the completion of the current program. The new one is expected to complete in three years after the commencement. On the whole I feel that a strong balance sheet, focus on online platform and regular buybacks would enhance the investors’ return in 2013.
F5 Networks, Inc. (NASDAQ: FFIV)
F5 Networks recently announced its 1Q13 results which were slightly below the analyst consensus. The company posted net sales of ~$365 million below the estimate of ~$368 million, but up by ~13% on y/y basis. The EPS of ~$1.14 was also lower than the estimate of $1.16. I feel this miss was mainly due to the fiscal cliff which impacted its sales performance for the federal government segment. As a result, its product sales witnessed an increase of just ~4% y/y in this quarter. The company anticipated a mixed next quarter with EPS in the range of ~$1.21-1.24 higher than the analyst estimates of ~$1.20.
Despite the mixed results and outlook, I still feel confident about the company's product line and expect its product revenue to jump after 2Q13. F5 Networks would focus more on its product line with new launches which would provide a perfect combination of price and performance. The company is all set to roll out its Solar TMOS operating system which includes 76 new features and an all new application delivery firewall solution. It will also introduce new ADC appliances which include low end 2000 series, high end BIG-IP 10200 and an 8-blade VIPRION 4800 chassis. I expect the company's product revenue growth to increase from ~2% in 2Q13 to ~8% in 3Q13 and to ~11% in 4Q13. F5 Networks will further see the benefits from various Cisco ACE replacements. It won three large deals with big enterprises which were earlier Cisco's customers. Cisco earns ~$200 million annually with ACE and I see this as a big opportunity for the company to expand beyond the core ADC platform. The company has delivered a good ~26% CAGR in its EPS in the last five years. And considering its product revenue growth, I expect the same trend to continue in the future.
To sum up, I feel both Bed Bath and F5 Network's stock prices are recovering after hitting the lower side in the last year. This provides a good entry point for the investors looking at their strong growth prospects for 2013 and beyond. Similarly Citrix would also see the benefits from its project Avalon pour in from mid-2013 providing a long-term growth opportunity.
madhudube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!