A Comparison of Five Debt-Free and Five Debt-Laden Companies

I write about a very large number of stocks, and one of the the things I've been noticing is that many of the companies that have had problems have a large amount of debt. In addition, I keep seeing a large number of stocks that have been performing well are debt-free.

I decided to do a 'quick and dirty' analysis of debt-free companies versus companies with a lot of dept. To keep things fairly consistent, I searched for stocks with price to earnings ratios below 30 and price earnings to growth ratios below 2. I then did a random selection of five stocks from each group and looked at the year-to-date returns. This is what I came up with:

High Debt

Goldman Sachs (GS) 13.7%

Morgan Stanley (MS) -21.1%

Lehman Brothers (LEH) -19.6%

Echostar (DISH) 12.3%

SLM Corp. (SLM) -19.7%

Average return -6.9%

Debt-Free

Microsoft (MSFT) 14.1%

SAP (SAP) -2.5%

Texas Instruments (TXN) 11.5%

Nvidia (NVDA) 31.1%

T. Rowe Price (TROW) 35.7%

Average return 18.0%

Of course, there are companies like Apple Inc. (AAPL) which are debt-free, and has had a return of 117.4% year to date, but it wouldn't even be part of the pool of stocks to even randomly extract from, since its P/E of 46.35 is outside the original criteria of 30 or less.

Anyway, it looks like this analysis warrants further research.

Disclosure: The author owns MSFT, SAP, and AAPL.