There are several sectors where companies leverage for growth. Leverage can be productive when the industry or GDP growth is robust. On the other hand, in times of economic downturn, leverage can stress the balance sheet and result in potential bankruptcy.
There are also less capital-intensive sectors that require less debt. Further, there are companies that prefer to infuse capital through equity than debt. These debt-free companies have strong fundamentals and ample financial headroom to pursue aggressive growth.
This column will discuss 4 debt-free companies with stocks to buy. Besides being debt-free, my focus is on stocks that are likely to be in limelight in the coming quarters.
- Kirkland Lake Gold (NYSE:KL)
- Virgin Galactic Holdings (NYSE:SPCE)
- Inovio Pharmaceuticals (NASDAQ:INO)
- Moderna (NASDAQ:MRNA)
These debt-free companies can be value creators in the near-term and the long-term.
4 Companies With Little Or No Debt Worth A Second Look: Kirkland Lake Gold (KL)
Gold has been trending higher due to aggressive expansionary monetary policies enacted by the Federal Reserve. Its not surprising that gold mining stocks have surged in fiscal year 2020. Among debt-free companies, Kirkland Lake Gold is an exciting name and a potential long-term value creator.
As of June 2020, the company reported $537 million in cash and zero debt. For the same quarter, the company reported free cash flow of $191.4 million. This implies an annualized FCF of $800 million.
Therefore, KL stock is well positioned to be a value creator with expanding EBITDA margin, higher cash flows, increasing dividends and zero debt.
Kirkland Lake Gold also acquired Detour Gold in January 2020, which will result in higher production in the coming years. Their debt-free status gives the company ample financial headroom to pursue aggressive capital investments, which will help maximize the benefit from higher gold prices.
Overall, KL stock is worth holding in your portfolio for its fundamental strength. In addition, the company operates in a sector that has multiple tailwinds.
Virgin Galactic Holdings (SPCE)
Virgin Galactic Holdings, a major player in the commercial spaceflight sector, is among the debt-free companies worth considering. SPCE stock has been in a consolidation zone in the last few months and a breakout is imminent.
In June 2020, the company announced the completion of a second test flight. With this, the company is closer to fulfilling its mission. It was also reported in June that the company is expected to receive a key FAA license within the next two space flights. Once the approval is received, SPCE stock is likely to trend higher.
From a revenue perspective, the company launched a “One Small Step” initiative where prospective customers can reserve their tickets for future flights for a $1,000 refundable deposit. By April 2020, the company had 400 customers registered. This implies $100 million in future revenues. This provides some insights on the company’s long-term growth potential.
Inovio Pharmaceuticals (INO)
With the frenzy around vaccines for the novel coronavirus, INO stock has stayed on investors’ minds this year. In the past year, INO stock has surged by 760%, with most of the gains coming in FY2020. With a strong balance sheet and minimal debt, the stock is worth considering as vaccine development remains in focus.
Specific to the COVID-19 vaccine, the company has already announced positive data for Phase 1 of the vaccine. Further, besides the coronavirus vaccine, the company has other DNA medicines in various phases of clinical trial.
The risk factor is that the company still does not have any commercialized drugs or vaccines. However, the stock could go ballistic if one or more of its pipeline medicines are commercialized. It therefore makes sense to have some exposure to INO stock.
As the world eagerly awaits a vaccine for the novel coronavirus, another name to watch is MRNA stock. After surging by 405% over just one year, the company currently trades at a current market capitalization of $27.9 billion. However, even with the investments related to research & development, Moderna remains debt-free.
In terms of developments related to the COVID-19 vaccine, Moderna is expected to commence Phase 3 trial of mRNA-1273 later this month. The trial will involve 30,000 participants.
Moderna also has other drugs in Phase 1 and Phase 2 of clinical trials, including potential Prophylactic Vaccines and cancer vaccines among others. Therefore MRNA stock could be interesting beyond the present crisis.
Importantly, the stock upside will sustain in the near-term if the clinical trials deliver positive results. With a debt free balance sheet, Moderna has ample financial headroom to invest in research and development. This will allow the company to grow in the coming years.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.