This screen is based on the Cash Flow to Debt Coverage Ratio. This compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company's ability to carry its total debt.
In our screen, we looked for companies whose debt coverage ratio is 0.75 or more. In scanning 7400 stocks, we came up with a list of 251 companies. We then cross-referenced this list with the S&P 500. The result is the following list of 23 stocks (prices as of the close on 2/10/09):
|BCR||Bard (C.R.) Inc.||Health Care||$85.00|
|CF||CF Industries Holdings Inc||Materials||$53.60|
|COH||Coach Inc.||Consumer Discretionary||$14.31|
|GPS||Gap (The)||Consumer Discretionary||$11.50|
|JEC||Jacobs Engineering Group||Industrials||$40.68|
|MO||Altria Group Inc.||Consumer Staples||$16.47|
|RHI||Robert Half International||Industrials||$17.38|
|SYK||Stryker Corp.||Health Care||$41.33|
|TIE||Titanium Metals Corp||Materials||$7.68|
|WFR||MEMC Electronic Materials||Information Technology||$14.57|
|XOM||Exxon Mobil Corp.||Energy||$76.14|
|ADBE||Adobe Systems||Information Technology||$20.48|
|AMZN||Amazon Corp.||Consumer Discretionary||$63.31|
|APOL||Apollo Group||Consumer Discretionary||$81.57|
|ADSK||Autodesk Inc.||Information Technology||$17.20|
|CTXS||Citrix Systems||Information Technology||$22.88|
|JNPR||Juniper Networks||Information Technology||$15.65|
|MSFT||Microsoft Corp.||Information Technology||$18.80|
|QCOM||QUALCOMM Inc.||Information Technology||$35.02|
|YHOO||Yahoo Inc.||Information Technology||$12.75|
It's interesting to see that the majority of stocks in this list are tech stocks (ie: in the Information Technology sector). I am surprised to see Yahoo, though; there must be more value in the company than meets the eye. Or maybe they are smart enough to manage their debt load well and lucky enough to maintain reasonable cash flow despite the fall-off in earnings the company has experienced recently.
Another surprise is the presence of some of the beaten down retail stocks like Coach and Gap in the Consumer Discretionary sector. I wouldn't have expected to see them in this strong a financial situation given how consumers seem to have gone on strike lately. On the other hand, Amazon is firing on all cylinders lately and this is a confirmation of that company's health. Note that Amazon is one of the stocks that was recently identified as a BUY in our Alert HQ.
In any case, an investor can use this list as a guide to companies that are not only conservative in taking on debt but that are also cash flow positive. Those are two characteristics that are always valuable in any investment.