In this article, we take a look at 11 best debt free stocks to buy.
There are different forms of debt.
Short term debt are financial obligations expected to be paid within a year. Long term debt is a financial obligation that matures over a year.
Debt can be an advantage when used correctly.
When used correctly, debt can help a company add value. If a company were to make an acquisition financed with debt and that acquisition generates substantially more profits than the cost of the purchase, the decision to take on debt would be a good one as long as adding the debt doesn’t stress the balance sheet. If a company takes on debt to help finance an internal project that ends up generating a great return on investment, the decision would also be a good one as long as the company’s debt remains within reasonable levels.
When used incorrectly, however, debt could destroy value. If there is a recession, a company’s EBITDA might decrease and the company would have a harder time growing if it had more debt.
Companies With No Net Debt
Some companies can take on more debt than other companies. Some industries can also take on more debt than other industries. During recessions, a company might not be able to take on as much debt as during economic growth times. A company might not be able to take on as much debt if interest rates rise too much either as it would mean too much interest rate payments.
Given the high inflation, the Federal Reserve has increased interest rates substantially in 2022. As a result, the cost of issuing new debt now is higher than what it was in the beginning of last year. Given the higher cost of debt, some companies may not want as much debt on their balance sheets as before. Some companies previously viewed taking on debt as potentially advantageous given that the cost of debt was so cheap when interest rates were really low. For those of you interested, check out 15 Countries with Lowest Interest Rates.
While there is a variation in terms of what’s an acceptable level of debt for a company or industry, generally companies with no net debt and substantial cash flows have more flexibility than similar companies with more debt.
Methodology
For our list of 11 Best Debt Free Stocks to Buy, we screened for stocks with zero debt to equity ratio and zero long term debt to equity ratios according to Finviz.com. We also included Meta Platforms, Inc. (NASDAQ:META) since the company has more cash than debt on its balance sheet.
We then filtered the list to include companies that have done relatively well in terms of their long term stock performance.
We then ranked the stocks based on the number of hedge funds in our database that owned shares of the same stock at the end of the third quarter.
11 Best Debt Free Stocks to Buy
11. Community Bank System, Inc. (NYSE:CBU)
Number of Hedge Fund Holders: 14
Community Bank System, Inc. (NYSE:CBU) is a bank with over 210 customer facilities across upstate New York, Northeastern Pennsylvania, Vermont, and Western Massachusetts. With assets of more than $15.5 billion, the regional bank is among the United States’ 125 largest banking institutions. According to FINVIZ, Community Bank System, Inc. (NYSE:CBU) has a debt to equity ratio of 0 and a long term debt to equity ratio of 0, giving the bank’s management flexibility in terms of capital allocation.
In the third quarter 2022, Community Bank System, Inc. (NYSE:CBU) reported net income of $0.90 per fully diluted share, compared to net income of $0.83 per fully diluted share in the third quarter of 2021. Return on assets was 1.24% and return on equity was 11.49%. Community Bank System, Inc. (NYSE:CBU)’s total loans rose 4.9% year over year and the bank realized a net interest margin of 3.03% up 29 basis points from Q3 2021.
Although shares of the stock are down from their highs in 2021, Community Bank System, Inc. (NYSE:CBU) stock has more than doubled from 2013.
Alongside Arista Networks, Inc. (NYSE:ANET), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Meta Platforms, Inc. (NASDAQ:META), Community Bank System, Inc. (NYSE:CBU) is a stock with no net debt worthy of consideration for long term investors.
10. Eastern Bankshares, Inc. (NASDAQ:EBC)
Number of Hedge Fund Holders: 17
Eastern Bankshares, Inc. (NASDAQ:EBC) is a regional bank ranking #10 on our list of 11 Best Debt Free Stocks to Buy given 17 hedge funds in our database of 920 funds held shares at the end of Q3.
The Boston based bank, which has substantial operations in Massachusetts and New Hampshire, has a debt to equity ratio of 0 and a long term debt to equity ratio of 0.
Although shares have declined from their 2021 highs, Eastern Bankshares, Inc. (NASDAQ:EBC) shares are still well above their initial public offering price of $10 a share.
In terms of the future, analysts expect earnings growth given consensus EPS estimates of $1.33 per share in 2022, $1.61 per share in 2023, and $1.77 per share in 2024. Shares of Eastern Bankshares, Inc. (NASDAQ:EBC) have a forward P/E ratio of 10.95 and dividend yield of 2.27% as of January 17.
9. Prosperity Bancshares, Inc. (NYSE:PB)
Number of Hedge Fund Holders: 19
Unlike many other stocks, Prosperity Bancshares, Inc. (NYSE:PB) shares haven’t declined that much versus the market. While the S&P 500 is down 12.81% in the last year, Prosperity Bancshares, Inc. (NYSE:PB) stock has declined only 6.23% in the last twelve months. In that time period, Prosperity Bancshares, Inc. (NYSE:PB) has also paid a dividend, which currently has a dividend yield of 2.95%.
When it comes to debt, Prosperity Bancshares, Inc. (NYSE:PB) has been fairly conservative given the bank has a debt to equity ratio of 0 and a long term debt to equity ratio of 0.
As a regional bank in the Texas and Oklahoma area, the local economies in the states have been strong so far and the rising interest rates have helped Prosperity Bancshares, Inc. (NYSE:PB)’s net interest income.
In addition to the dividend, shares of Prosperity Bancshares, Inc. (NYSE:PB) have rallied over 50% from the beginning of 2013.
8. Commerce Bancshares, Inc. (NASDAQ:CBSH)
Number of Hedge Fund Holders: 19
Commerce Bancshares, Inc. (NASDAQ:CBSH) is a regional bank that provides full service banking services across the Midwest. In the third quarter, the bank earned $1.02 per share compared to $0.99 per share in the same quarter of last year. For the period, Commerce Bancshares, Inc. (NASDAQ:CBSH) had an efficiency ratio of 55.19%, a return on average equity of 17.84% and a return on total average assets of 1.48%.
Thanks to earnings growth, Commerce Bancshares, Inc. (NASDAQ:CBSH) shares have more than doubled from 2013 and the bank also has financial flexibility given its debt to equity ratio of 0 and its long term debt to equity ratio of 0.
7. Columbia Sportswear Company (NASDAQ:COLM)
Number of Hedge Fund Holders: 20
Columbia Sportswear Company (NASDAQ:COLM) doesn’t have any debt payments given it has a debt to equity ratio of 0 and a long term debt to equity ratio of 0 according to FINVIZ.com. Given its debt flexibility, the apparel maker has more opportunities at M&A if it chooses to.
In addition to having financial flexibility, Columbia Sportswear Company (NASDAQ:COLM) has said its goal is to maintain a strong balance sheet and to be disciplined at capital allocation. The company also plans to return at least 40% of free cash flow to shareholders through dividends and share repurchases. Although shares of Columbia Sportswear Company (NASDAQ:COLM) are down slightly in the last year, the stock has more than doubled from 2013.
6. First Hawaiian, Inc. (NASDAQ:FHB)
Number of Hedge Fund Holders: 22
First Hawaiian, Inc. (NASDAQ:FHB) is a regional bank in Hawaii with a debt to equity ratio of 0 and a long term debt to equity ratio of 0. Although the stock fell substantially during the pandemic given tourism makes up a substantial part of Hawaii’s economy, shares of the bank have largely rebounded from their 2020 lows and are higher than their 2016 IPO price of $23 per share. 22 hedge funds in our database owned shares of First Hawaiian, Inc. (NASDAQ:FHB) at the end of the third quarter, ranking the bank #6 on our list of 11 Best Debt Free Stocks to Buy.
Like First Hawaiian, Inc. (NASDAQ:FHB), Arista Networks, Inc. (NYSE:ANET), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Meta Platforms, Inc. (NASDAQ:META) are stocks with no net debt worthy of consideration for long term investors.
5. T. Rowe Price Group, Inc. (NASDAQ:TROW)
Number of Hedge Fund Holders: 30
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a leading asset management company with a debt to equity ratio of 0 and a long term debt to equity ratio of 0. As of December 31, 2022, the company had $1.28 trillion in assets under management.
Although the stock has fallen over 46% from its highs in 2021, shares of T. Rowe Price Group, Inc. (NASDAQ:TROW) have still nearly doubled from the beginning of 2013. T. Rowe Price Group, Inc. (NASDAQ:TROW) has a dividend yield of 4.05% as of 1/17.
4. Monster Beverage Corporation (NASDAQ:MNST)
Number of Hedge Fund Holders: 39
Monster Beverage Corporation (NASDAQ:MNST) is a leading energy drink company whose stock has has surged from under $16 in January 2013 to $102.17 as of 1/17. Given the company’s strong marketing, Monster Beverage Corporation (NASDAQ:MNST) has achieved 30 straight years of increased sales. For the nine months ended September 30,2022 the company achieved $4.8 billion in net sales, up 16.6% over the net sales of $4.1 billion for the same period in 2021.
Despite the strong growth, Monster Beverage Corporation (NASDAQ:MNST) has a debt to equity ratio of 0 and a long term debt to equity ratio of 0.
3. Arista Networks, Inc. (NYSE:ANET)
Number of Hedge Fund Holders: 42
Arista Networks, Inc. (NYSE:ANET) is a cloud networking solutions company that reported sales of $1.177 billion in Q3 2022, up 57.2% from the third quarter of 2021. For the period, Arista Networks, Inc. (NYSE:ANET) also earned an adjusted net income of $1.25 per diluted share up from the adjusted net income of $0.74 per share in Q3 2021.
42 hedge funds in our database owned shares of Arista Networks, Inc. (NYSE:ANET) at the end of Q3, ranking the stock #3 on our list of 11 Best Debt Free Stocks to Buy.
Arista Networks, Inc. (NYSE:ANET) shares have increased substantially from their 2014 stock price of under $23 per share.
2. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Number of Hedge Fund Holders: 45
Chipotle Mexican Grill, Inc. (NYSE:CMG) has been one of the more volatile stocks on our list in terms of its performance over the past decade. Nevertheless, despite the volatility, Chipotle Mexican Grill, Inc. (NYSE:CMG) stock has tripled from 2013 as the market anticipates Chipotle Mexican Grill, Inc. (NYSE:CMG) to grow its EPS in the future considering its forward P/E ratio of 36.04. Although opening restaurants take capital, Chipotle Mexican Grill, Inc. (NYSE:CMG) does not franchise and the company has a debt to equity ratio of 0 and long term debt to equity ratio of 0.
1. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 177
Meta Platforms, Inc. (NASDAQ:META) ranks #1 on our list of 11 Best Debt Free Stocks to Buy given 177 hedge funds in our database owned shares of the social media giant at the end of the third quarter. Although Meta Platforms, Inc. (NASDAQ:META) actually does have some long term debt given its long term debt ratio of 0.08, Meta Platforms, Inc. (NASDAQ:META) has a lot of cash and short term investments on its balance sheet to more than cover its debt. As of September 30, the company had cash, cash equivalents, and marketable securities of $41.78 billion versus long term debt of $9.92 billion. Although Meta Platforms, Inc. (NASDAQ:META) stock hasn’t done well in 2022, shares are still substantially higher than in 2013.
ClearBridge Investments commented on Meta Platforms, Inc. (NASDAQ:META) in a Q3 2022 investor letter,
We initiated a new position in Meta Platforms, Inc. (NASDAQ:META), in the communication services sector, which operates the Facebook and Instagram social media platforms and is a leading digital advertising provider. We have been carefully watching the company over the last few quarters and believe headwinds from lower monetizing in Facebook and Instagram Reels and pressures from consumer privacy measures are poised to lessen. We believe the company has begun to fully acclimate to this new environment, will achieve greater effectiveness in Reels monetization and find ways to adapt to new privacy standards which will rebound advertising efficiency. Combined with a greater focus on cost control, we believe these initiatives will help contribute to further margin expansion and leave the company well-positioned moving forward.
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Disclosure: None. 11 Best Debt Free Stocks to Buy is originally published on Insider Monkey.
