I came across an article yesterday on cnnmoney by Paul La Monica that talks about how companies with low debt loads are out performing stocks of firms that are in massive amounts of debt. Here are some interesting stats from the article:
According to figures from Thomson Baseline, shares of S&P 500 companies with a long-term debt to capital ratio below 34% -- the S&P 500 average -- are up an average of 10.3% this year. The S&P 500 stocks with debt loads above 34% are up only 1.2%.
This holds true for smaller companies too. Firms in the S&P SmallCap 600 with a below-average debt load are up 7.2% this year while those with higher debt loads are down 1.6%.Shares of S&P 500 firms that are debt-free are up an average of 15.6% this year. Debt-free tech giants Apple and Google have both surged more than 30%.
"In times like this, companies with high cash and low debt levels are in a better position to survive and take advantage of opportunities to grow through acquisitions,"
"Any type of financing is tough to come by. And in cyclical businesses, firms with no or little debt have a competitive advantage,"