4 Companies With No Debt for Your Portfolio
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A company that can generate cash flow with little or no outside financing, such as floating debt, represents an optimal investment. This gives those particular companies a leg up in accessing external financing if the need arises. The four companies below fall into that category.
The pay per item model of ultra-low cost airline Spirit (NASDAQ: SAVE) empowers customers to save or pay for extra items such as seat selection and baggage handling. With other airlines, the cost of a ticket covers extra items whether they are needed or not. The frugal customer can pay only for certain items desired in addition to the low fare rate.
Spirit possesses excellent fundamentals. In 2012, Spirit grew its revenue and net income 23% and 42% respectively. Its $417 million in cash represents 72% of its stockholder’s equity giving it plenty of liquidity. Operating margins did take a 2% hit mainly due to hurricane Sandy.
Spirit shareholders can expect a great deal of expansion over the next five years. Spirit has introduced 14 new routes so far in 2013. It wants to expand its fleet by 22% this year. In addition, Spirit plans to take delivery of 106 Airbus A320 aircraft through 2021.
Automotive parts supplier Dorman Products (NASDAQ: DORM) sells car parts to auto parts chains such as Autozone and Advanced Auto. Tough macroeconomic conditions compel consumers to hold onto their cars for a while longer. Older cars need repairs and Dorman can provide the parts for those repairs. According to its Form 10-K, Dorman feels the vast majority of its products constitute parts crucial for the safe functioning of a vehicle.
In 2012, Dorman Products increased sales and net income 11% and 33% respectively. Gross margin, operating margin, and profit margin increased 2%, 7%, and 20% respectively.
Dorman feels increasing product availability for the aftermarket will increase its chances for success. Memories of the great recession will compel increasingly frugal habits of the consumer who will delay purchases of new vehicles translating into increased sales of parts.
Apparel and accessories retailer Buckle (NYSE: BKE) possesses the solid fundamentals needed in a highly competitive industry like retailing. Top line growth in all of its merchandise categories shows its firm grasp on consumer preferences. According to Buckle’s latest earnings call, men’s, women’s, combined accessories, and footwear all increased 8%, 5%, 9%, and 13% respectively.
Overall, Buckle increased its revenue and net income 6% and 9% respectively and maintains a cash and investments to stockholder’s equity position of 62% despite its special dividend payment in 2012. Buckle always shows prudent use of cash by expanding slowly. It plans to open 13 new stores in 2013 expanding its store count by 3%. Moreover, Buckle likes to reward its shareholders mostly with cash dividends instead of share buybacks.
Gun manufacturer Sturm, Ruger (NYSE: RGR) increased its revenue and net income 50% and 77% respectively benefiting from anxiety over political attitudes toward gun ownership. Consumers worry about the future availability of guns.
Sturm, Ruger still maintains an excellent balance sheet in spite of its 2012 special dividend. Its $31 million cash and investments stash equates to 33% of stockholder’s equity.
Demand for guns may temporarily subside in the short term once the panic dies down, but over the long term Sturm, Ruger will outperform due to the permanent nature of crime itself. The need to defend yourself will always exist.
On the whole, zero debt on the balance sheet for these companies affords them the financial flexibility to seek financing, if necessary, for future expansion. Cash ordinarily used for interest payments to bondholders can go towards dividends and investments in their respective businesses. Self-sufficient companies like the ones mentioned here will provide superior returns for your portfolio.
William Bias owns shares of Ruger & Company and The Buckle mentioned. The Motley Fool recommends The Buckle. The Motley Fool owns shares of SPIRIT AIRLINES INC, Sturm, Ruger & Company, and The Buckle. 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!