7 S&P Stocks Prepared For A Debt Crisis

James Dennin, Kapitall: Last time Congress battled over national debt, the S&P fell almost 17% the next day. Which stocks are prepared in case history repeats? 

All eyes are on Washington this week, as concerns of another war have subsided and the markets have turned their attention to the budget battle in Congress. House Republicans have been very clear that they intend to use the upcoming debt ceiling to create leverage in their fight to prevent the implimentation of the Affordable Care Act, among other things.

[Read more from Kapitall: Farm Bill Deadline Looms: Can These Stocks Grow Without New Legislation?]

The US Treasury could run out of money to fund its operations as soon as October 1. While a government shutdown would be destructive, most analysts are saying that refusing to heighten the debt ceiling would have profound economic implications itself.

The last time Congress failed to raise the debt ceiling in a timely manner, America's credit was downgraded and the S&P 500 slipped almost 17% in a single day. While stock markets have improved considerably since 2011 – the best annual gain in four years - many are worried that a debt ceiling debate could jeopardize the fragile recovery. Besides, the downgrade in US credit has already resulted in billions in new borrowing costs. If a similar situation were to play out, it could get considerably more expensive for American firms to borrow money. 

Uncertainty over Congress is likely why Chairman Bernanke and the Federal Reserve have delayed tapering even further into the fall than previously expected. This will help keep borrowing costs down, although American markets will not, as they did in 2011, benefit from extra liquidity resulting from a European debt crisis. 

Investing ideas

While the S&P 500 is likely to take a hit in the coming weeks, it may also recover quickly. Republicans, adamant as they may be about stopping Obamacare, do not want to see borrowing costs skyrocket and equities plummet any more than Democrats do. 

One way to tell which firms are confident in this environment is by looking at their balance sheet. Companies that are heavily leveraged could be in trouble, while companies that are adding to their capital expenditures may be faring better.

We decided to run a screen on S&P 500 stocks to see who would be potentially resilient in the event of a political battle that rattles stock markets. Starting with the S&P 500 as a universe, we screened for companies with very small debt loads, less than 1% in the long term. 

Next we looked for signs of growth in profitability by looking at gross margins - which is a measure of pure profits that a company is free to reinvest. A high gross margin relative to the industry average means that a company has extra money to re-invest, perhaps in new staff or other investments.

We were left with seven companies on our list. 

Do you think the wheelings and dealings in Washington will affect these stocks? Use the list below as a starting point for your own analysis. 

1. Fastenal Company ( FAST): The Company Is Engaged As A Wholesaler And Retailer Of Industrial And Construction Supplies. Market cap at $14.89B, most recent closing price at $50.16.

TTM gross margin at 53.8% vs. industry average at 41.5%. TTM operating margin at 21.78% vs. industry average at 16.25%. TTM pretax margin at 21.83% vs. industry average at 13.58%.

LTDebt/Equity: 0.00.

 

2. F5 Networks, Inc. ( FFIV): Provides technology that optimizes the delivery of network-based applications, and the security, performance, and availability of servers, data storage devices, and other network resources in the Americas, EMEA, Japan, and the Asia Pacific. Market cap at $7.35B, most recent closing price at $93.62.

TTM gross margin at 85.55% vs. industry average at 58.18%. TTM operating margin at 28.82% vs. industry average at 19.25%. TTM pretax margin at 29.33% vs. industry average at 18.36%.  

LTDebt/Equity: 0.00.

 

3. Helmerich & Payne Inc. ( HP): Engages in the contract drilling of oil and gas wells in the United States and internationally. Market cap at $7.48B, most recent closing price at $70.32.

TTM gross margin at 45.51% vs. industry average at 32.95%. TTM operating margin at 27.84% vs. industry average at 18.49%. TTM pretax margin at 33.03% vs. industry average at 17.32%

LTDebt/Equity: 0.05.

 

4. Mastercard Incorporated ( MA): Provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers' cheque programs. Market cap at $82.97B, most recent closing price at $685.74.

TTM gross margin at 58.11% vs. industry average at 50.68%. TTM operating margin at 55.% vs. industry average at 30.83%. TTM pretax margin at 54.96% vs. industry average at 30.75%. 

LTDebt/Equity: 0.00.

 

5. Paychex, Inc. ( PAYX): Provides payroll, human resource, and benefits outsourcing solutions for small-to medium-sized businesses in the United States and Germany. Market cap at $14.95B, most recent closing price at $40.99.

TTM gross margin at 75.36% vs. industry average at 50.68%. TTM operating margin at 38.9% vs. industry average at 30.83%. TTM pretax margin at 39.18% vs. industry average at 30.75%.  

LTDebt/Equity: 0.00.

 

6. QUALCOMM Incorporated ( QCOM): Engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. Market cap at $119.27B, most recent closing price at $69.06.

TTM gross margin at 66.7% vs. industry average at 58.18%. TTM operating margin at 31.45% vs. industry average at 19.25%. TTM pretax margin at 33.96% vs. industry average at 18.36%.

LTDebt/Equity: 0.00.

 

7. Xilinx Inc. ( XLNX): Designs, develops, and markets programmable platforms in North America, the Asia Pacific, Europe, and Japan. Market cap at $12.45B, most recent closing price at $47.12.

TTM gross margin at 69.39% vs. industry average at 58.09%. TTM operating margin at 28.13% vs. industry average at 17.83%. TTM pretax margin at 26.56% vs. industry average at 16.47%.

LTDebt/Equity: 0.00.

 

 

( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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