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When the global economy is weak, having a lean and mean business is not an aspiration but rather a reality if you want it to succeed. Further, while it's common for most companies to take on some level of debt for a variety of reasons, some choose to abstain from it completely. In our view, this creates a unique position for the company, given that even greater profit margins can be attained due to the lack of debt financing costs. While this doesn't guarantee a higher stock price, it does give the company more room to operate freely in a tough economy. In our view, the low-to-no debt companies listed here are worth of reviewing, because they have underperformed recently and yet they still hold a strong bottom line profit margin, which could potentially translate into long-term value for patient shareholders.

The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially “enhanced” earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability.

We first looked for mid cap stocks that have achieved strong bottom line profitability (Net Margin [TTM]>10%) and operate with little to no debt (D/E Ratio<.3). From this narrowed list of candidates, we then looked for companies that have underperformed the S&P 500 over the last three months. We did not screen out any sectors.

The list is ranked from lowest to highest by the Debt/Equity Ratio:

1. Cavium Inc. (CAVM)

Sector

Technology

Industry

Semiconductors

Market Cap

$1,697M

Beta

1.40

The company Cavium, Inc. designs, develops, and markets semiconductor processors for intelligent and secure networks. CAVM has a net margin [TTM] of 17.19% & a Debt/Equity level of 0.00. The short interest was 9.80% as of 10/14/2011.

2. Changyou.com Ltd. (CYOU)

Sector

Technology

Industry

Electronic Gaming & Multimedia

Market Cap

$1,395M

Beta

1.42

The company Changyou.com Limited develops and operates online games in the People's Republic of China. CYOU has a net margin [TTM] of 50.30% & a Debt/Equity level of 0.00. The short interest was N/A as of 10/14/2011.

3. Haemonetics Corporation. (HAE)

Sector

Healthcare

Industry

Medical Instruments & Supplies

Market Cap

$1,478M

Beta

0.47

The company Haemonetics Corporation develops and manufactures automated blood component collection devices and surgical blood salvage devices to plasma and blood collectors, hospitals and health care providers. HAE has a net margin [TTM] of 10.27% & a Debt/Equity level of 0.00. The short interest was N/A as of 10/14/2011.

4. Idexx Laboratories. (IDXX)

Sector

Healthcare

Industry

Diagnostics & Research

Market Cap

$4,081M

Beta

0.93

The company IDEXX Laboratories, Inc. develops, manufactures and distributes products primarily for the companion animal veterinary, livestock and poultry, water testing, and dairy markets and provides related services. IDXX has a net margin [TTM] of 13.40% and a Debt/Equity level of 0.00. The short interest was 10.10% as of 10/14/2011.

5. Medicis Pharmaceuticals Corpor. (MRX)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$2,391M

Beta

1.18

The company Medicis Pharmaceutical Corporation, a specialty pharmaceutical company, engages in the development and marketing of products for the treatment of dermatological and aesthetic conditions in the United States, Canada and Europe. MRX has a net margin [TTM] of 13.90% & a Debt/Equity level of 0.00. The short interest was 9.80% as of 10/14/2011.

6. NetEase.com, Inc. (NTES)

Sector

Technology

Industry

Internet Content & Information

Market Cap

$6,232M

Beta

1.35

The company NetEase.com, Inc., an Internet technology company, engages in the development of applications, services, and other technologies for the Internet in China. NTES has a net margin (TTM) of 42.52% & a Debt/Equity level of 0.00. The short interest was N/A as of 10/14/2011.

7. NeuStar, Inc. (NSR)

Sector

Communication Services

Industry

Telecom Services

Market Cap

$2,394M

Beta

0.93

The company Neustar, Inc. provides technology and directory services to its communications service provider (carrier) and non-carrier, commercial business customers primarily in North America, Europe, and the Middle East. NSR has a net margin [TTM] of 27.94% & a Debt/Equity level of 0.00. The short interest was 5.30% as of 10/14/2011.

8. Varian Medical Systems, Inc. (VAR)

Sector

Healthcare

Industry

Medical Instruments & Supplies

Market Cap

$6,794M

Beta

0.97

The company Varian Medical Systems, Inc., together with its subsidiaries, designs, manufactures, sells and services equipment and software products for treating cancer and x-ray products worldwide. VAR has a net margin [TTM] of 15.94% & a Debt/Equity level of 0.00. The short interest was N/A as of 10/14/2011.

9. Veeco Instruments Inc. (VECO)

Sector

Technology

Industry

Semiconductor Equipment & Materials

Market Cap

$1,131M

Beta

2.68

The company Veeco Instruments Inc. designs, manufactures and markets equipment to make high brightness light emitting diodes (HB LEDs), solar panels, hard-disk drives and other devices. VECO has a net margin [TTM] of 27.98% and a Debt/Equity level of 0.00. The short interest was N/A as of 10/14/2011.

10. Guess, Inc. (GES)

Sector

Consumer Cyclical

Industry

Apparel Stores

Market Cap

$2,906M

Beta

1.78

The company Guess? Inc. designs, markets, distributes and licenses lifestyle collections of apparel and accessories for men, women and children. GES has a net margin [TTM] of 10.44% & a Debt/Equity level of 0.01. The short interest was #% as of 10/14/2011.

We hope this list helps investors as they do teir own do diligence on low and no debt companies with strong profitability.

*Company profiles were sourced from Finviz.

Source: 10 Oversold, No Debt Stocks Operating With Impressive Profitability