Stocks with 0 Debt
The matter of owning shares in a company that has interest-bearing debt is an uncomfortable one for many.
As we know, the prohibition of interest-bearing debt in Islam is absolute.
Allah (swt) says in the Quran, Surah Al-Baqarah, about riba:
بِسْمِ ٱللَّٰهِ ٱلرَّحْمَٰنِ ٱلرَّحِيمِ
يَا أَيُّهَا الَّذِينَ آمَنُواْ اتَّقُواْ اللّهَ وَذَرُواْ مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ
فَإِن لَّمْ تَفْعَلُواْ فَأْذَنُواْ بِحَرْبٍ مِّنَ اللّهِ وَرَسُولِهِ وَإِن تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لاَ تَظْلِمُونَ وَلاَ تُظْلَمُونَ
278: O you who believe, fear Allah and give up what remains [due to you] of riba, if you are in truth believers.
279: And if you do not, then be warned of war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged.
The aforementioned verses offer no ambiguity regarding the prohibition of riba, i.e. interest on debt, or the seriousness of this sin.
That said, most scholars make a distinction between what one can control and what they cannot.
Individual investors in public companies have very little influence over how the company manages itself financially and banning any association with any company that makes the decision to use interest-bearing debt would not be in the best-interest of Muslims globally since it would lock them out of investing in virtually all companies.
At least this is the argument that is made and I agree with it in principle.
That said, what few Muslims disagree on is that, all else being equal, the less dealings with interest the better.
So in this article I’m going to share with you three companies that have 0 debt on their balance sheet, and healthy financial outlooks (at least according to yours truly).
This is not investment advice so make sure to do your own due diligence before investing, you know the drill.
Before I start with my list, If you’re looking to assemble a portfolio of zero debt companies, I went through the trouble of finding 7 additional companies similar to the ones I’m about to mention in this list (so a total of 10) that I think have solid financial prospects. You can purchase this list on our buy me a coffee page.
Let’s start with our list of 3 promising stocks PIF is comfortable investing in that have 0 debt as of the day of publishing this article:
1. Intuitive Surgical (ISRG)
Intuitive Surgical is a pioneer and a global technology leader in robotic-assisted, minimally invasive surgery.
It designs, develops, manufactures, and markets robotic surgical devices called the Da Vinci Surgical System.
Intuitive Surgical earns its revenue from the following revenue sources:
Includes revenue generated from sales of the Da Vinci Surgical System and its compatible instruments which allow surgeons to operate remotely with machine precision.
Includes revenue generated from the company’s field engineering services and system training programs. This includes 24/7 support, installation, repair, and maintenance.
This is a company that has had no debt for more than 5 years now and as a profitable company with more than $1 billion dollars in cash I don’t think it’s going to need to take out debt anytime soon.
ISRG earned close to $1.6 billion dollars over the previous 12 months as of June of 2021.
ISRG is not cheap by any stretch currently trading at a market cap of close to $120 billion and a multiple of earnings (PE ratio) in the 70s.
ISRG’s valuation exposes it to a possible drawdown if it has a disappointing quarter but given how well Intuitive Surgical is managed, and the best-in-class product that it provides in a field that represents where the future is heading i.e. minimally invasive surgery assisted by robotics, I think its valuation is reasonable and with a 3 for 1 stock split on the horizon it’s definitely worth considering.
2. Garmin (GRMN)
Garmin makes a range of navigation, communication, and information devices.
Its Fitness segment offers activity tracking and smartwatch devices.
The company’s Outdoor segment offers adventure watches, outdoor handhelds, golf devices, and dog tracking and training devices.
Its Aviation segment makes various aircraft avionics solutions including navigation and communication products.
The company’s Marine segment provides fish finders, sonar products, and radars.
Its Auto segment offers embedded infotainment systems; personal navigation devices; and cameras.
Garmin has had no debt for more than 5 years.
The company was profitable to the tune of $1.2 billion dollars in the last twelve months and has close to $2 billion dollars in cash which suggests it shouldn’t need to raise debt anytime soon.
Garmin is reasonably priced trading at a market cap of $30 billion and a multiple of earnings or PE ratio of 25.
It also has a pretty healthy dividend yield of 1.7% so you get to wet your beak with some liquidity as a holder.
Garmin has been consistently profitable for a long time and has been able to maintain a pristine balance sheet along the way. Impressively, Garmin has grown EPS by 24% per year in the last three years.
This is something as an investor who likes to pride themselves on being sensible and fundamentals based I wholly appreciate.
Yes, their products aren’t going to get me giddy with excitement but if I’m looking for a company that doesn’t have any debt and will likely have above average performance moving forward, Garmin would be high on my watchlist.
3. Endava (DAVA)
Endava provides cloud transformation, test automation and tech consulting services.
Endava is profitable and has had no debt since the end of 2018.
Endava has a very rich valuation of close to 8 billion dollars trading at a multiple of earnings of 166.
The company’s rich valuation is largely a function of its stellar track record and breakneck pace of growth which is expected to continue into the future.
The company is expected to grow earnings at 30% compared to the industry average of 18%.
In light of the continued growth that the tech consulting industry is expected to experience, Endava’s stellar past execution and its robust financials, while not cheap, I think Endava is a solid choice for a zero debt company.
Building a portfolio
You can purchase a list of 7 additional companies with no debt, similar to the ones I mentioned in this list (so a total of 10) which I think have solid future prospects on our membership page.
Disclaimer: the author does not hold any positions in the stocks mentioned in this list.