Out of the largest 2,000 U.S. companies, only about 3% boast both high profitability and low debt, making them stand out in the market. Among these rare finds are Graco Inc., a Minnesota-based company that specializes in fluid-handling systems and products, with a return on equity of 23% and debt at only 2% of equity. A.O. Smith Corp., based in Wisconsin, is another standout with a 31% return on equity and debt only at 8% of equity. Mueller Industries Inc. from Tennessee is also a top performer, with a 25% return on equity and debt at 1% of equity.
Warrior Met Coal Inc., headquartered in Alabama, specializes in mining hard coking coal for steel production, with a return on equity of 29% and debt at only 9% of equity. Axcelis Technologies Inc., based in Massachusetts, focuses on equipment used in making semiconductor chips, boasting a 31% return on equity and debt at 5% of equity. These companies offer attractive investment opportunities due to their strong financial performance and low debt ratios.
Looking back at past recommendations from the writer, it is evident that companies with high profitability and low debt have been successful investments. Over the past 20 columns on such companies, the average 12-month return has been 11.3%, slightly outperforming the S&P 500 Total Return Index. Thirteen out of the 19 columns have shown a profit, with 10 outperforming the benchmark. Although past performance does not guarantee future results, these companies have consistently delivered strong returns for investors.
In the previous year, Mueller Industries emerged as the top performer among the highlighted stocks, returning 38%. Other picks like Cal-Maine Foods and Moderna Inc. also delivered positive returns, while Diodes Inc. experienced a decline in value. The performance of these companies showcases the potential for investors to generate profits by focusing on companies with high profitability and low debt. Warrior Met Coal, personally owned by the writer in a hedge fund, and Cal-Maine Foods are among the current holdings that continue to show promise for future returns.
Overall, companies with high profitability and low debt ratios provide investors with attractive opportunities for long-term growth and stability. By focusing on companies like Graco, A.O. Smith, Mueller Industries, Warrior Met Coal, and Axcelis Technologies, investors can build a well-rounded portfolio of strong performers in various industries. As demonstrated by past performance and the writer’s personal investments, these companies have the potential to deliver consistent returns and outperform the broader market indices.
