The phrase “cash is king” is all over the internet right now as investors look for safe haven, low-debt stocks to buy in an effort to take advantage of the market’s nosedive.
While true, the important aspect of financial stability among U.S. firms right now is debt. Low-debt companies are not only likely to survive the coronavirus outbreak, but they’ll also survive the recession that’s almost certain to follow.
As Carolin Schellhorn, Ph.D and assistant professor of finance at Saint Joseph’s University put it:
At any stage in the business cycle it is important to look for companies that carry relatively low debt levels, but this is even more important if the economy goes into a recession. Firms with less financial leverage have lower interest burdens. They also have more flexibility as industries respond to the structural changes associated with the global transition to a low-carbon economy.
With that in mind, investors should choosing financially stable stocks to invest in as a recession approaches. That means a strong cash position coupled with relatively low debt obligations — criteria that can be hard to find on Wall Street.
Low-Debt Stocks to Buy: Alphabet (GOOG,GOOGL)
Of every stock on the market right now, I believe that Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) is one of the best low-debt stocks to buy. That’s because the firm is in a prime position to weather whatever storm is coming. Not only does Alphabet have an ultra-low debt to equity ratio of 2.26, but it’s also cash-rich. Google is sitting on upwards of $90 billion worth of cash.
Having very little debt-to-service means Google can use that capital to invest while the rest of the industry struggles. The company will be able to make strategic acquisitions when its competitors are working to stay afloat.
Google, like the rest of its peers, will see some softness in ad spending in the months ahead. But the firm’s dominance in the search arena means it shouldn’t fare any worse than the rest of the sector. Plus, its strong cash flow position means Google is able to pay the interest on its debt without issue— one year of Google’s $48 billion worth of cashflow is enough to pay off interest expenses for half a century.
Another of the FAANG stocks that looks likely to come out of a recession unscathed is social media giant Facebook (NASDAQ:FB). Facebook carries no long-term debt, which makes it an appealing stock to buy in today’s environment. Without a huge pile of debt-to-service like many of its peers, Facebook has more room to maneuver even if things get tight.
Plus, Facebook’s value as a service to connect people has just shot through the roof now that about a quarter of the world’s population is on lockdown. The firm’s WhatsApp and Messenger services are likely to see a dramatic spike in usage. Both Facebook and Instagram will probably enjoy a bump in active user numbers as well.
Like Google, Facebook is at the mercy of advertising spend—something that’s likely to take a hit as the economy continues to soften. But that’s a reality for everyone in the industry and one that Facebook looks ready to cope with.
Skyworks Solutions (SWKS)
Another of the best stocks to buy as economic pain in the U.S. continues is Skyworks Solutions (NASDAQ:SWKS), a semiconductor firm that should benefit from the 5G rollout this year. The Massachusetts-based company was posting wild ups and downs before coronavirus became a factor. Investors worried about the trade war with China, but things were just starting to look up for SWKS stock before the virus took the market on a nosedive.
Skyworks connected chips are found in all kinds of everyday electronics from smartwatches to Facebook’s Oculus virtual reality headsets. As connected technology gets a boost from 5G, Skyworks will benefit.
But the real reason SWKS looks like a good bet in the chip space is the firm’s ironclad financial position. The company carries no long-term debt, which will be a huge benefit as supply chain interruptions due to coronavirus continue to ravage the industry.
It goes without saying that buying anything, let alone a semiconductor stock, in today’s market comes with a great deal of risk. But if you’ve got a long timeline and you can wait out some volatility, Skyworks stock looks like a good pick in the beaten down market.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.