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When considering stocks, company debt is always important to keep in mind because debt is a wedge between firm value and the firm’s value to shareholders. When company debt reaches high levels, it diverts money away from shareholders (away from dividends) and towards higher interest payments. High debt also reduces the firm’s financial flexibility.

We ran a screen on low-debt stocks (with most recent quarter total debt to assets below 0.2) that appear undervalued to cash flow, with P/CF below 5. We screened this universe for those that are highly profitable, beating their industry peers on gross, operating, and pretax margins.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

List sorted by market cap.

1. Domtar Corporation (NYSE:UFS): Paper & Paper Products Industry. Market cap of $3.94B. P/CF at 3.74. MRQ total debt to assets at 0.14. TTM gross margin at 26.13% vs. industry gross margin at 24.76%. TTM operating margin at 13.58% vs. industry operating margin at 8.65%. TTM pretax margin at 9.53% vs. industry pretax margin at 7.59%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.77). The stock has gained 71.29% over the last year.

2. Vishay Intertechnology Inc. (NYSE:VSH): Semiconductor Industry. Market cap of $2.51B. P/CF at 4.89. MRQ total debt to assets at 0.14. TTM gross margin at 37.44% vs. industry gross margin at 36.75%. TTM operating margin at 17.31% vs. industry operating margin at 9.09%. TTM pretax margin at 16.56% vs. industry pretax margin at 9.62%. This is a risky stock that is significantly more volatile than the overall market (beta = 2.17). The stock is a short squeeze candidate, with a short float at 9.04% (equivalent to 5.25 days of average volume). The stock has gained 71.19% over the last year.

3. Alaska Air Group, Inc. (NYSE:ALK): Regional Airlines Industry. Market cap of $2.31B. P/CF at 4.48. MRQ total debt to assets at 0.22. TTM gross margin at 29.34% vs. industry gross margin at 23.76%. TTM operating margin at 14.0% vs. industry operating margin at 8.98%. TTM pretax margin at 11.44% vs. industry pretax margin at 6.40%. The stock has gained 28.68% over the last year.

Total debt to assets and P/CF data sourced from Screener.co, profitability data sourced from Fidelity, all other data sourced from Finviz.

Source: 3 Highly Profitable, Undervalued Stocks With Low Debt