8 Low-Debt S&P 500 Stocks With Growth, Profits and Moats

The recent rise in long-term interest rates indicates that investors are anticipating an extended period of elevated interest rates in the future, instead of the earlier belief that the rate hikes are brief and temporary.

This shift holds various implications, notably for companies burdened with substantial long-term debts. These entities are poised to experience amplified financing costs, consequently dampening their profit margins.

Thus, I wanted to find out if there are companies with minimal debt exposures such that they won't be affected even when interest rates increase. This pool of stocks may present opportunities for investors to look at.

Using the S&P 500 index as a base of stocks to look at, I screened for debt-to-equity of less than 10%. But I didn't just want to look at low debt companies, I wanted high quality businesses that have growth and are able to make good profits. Also, they should possess some form of moat of competitive advantages.

Hence, I augmented the screening requirements with two additional criteria: a 5-year Compound Annual Growth Rate (CAGR) of revenue exceeding 10% and a net profit margin surpassing 20%.

With these screen criteria I managed to narrow down to just 8 stocks. And they all happened to have moats according to Morningstar ratings!

Let's do a rundown, from the highest debt-to-equity to the lowest.

#8 MarketAxess (MKTX)

• Debt-to-Equity: 7%

• Revenue CAGR (5y): +13%

• Net Profit Margin: 34%

MarketAxess is an electronic bond trading marketplace. It competes with Bloomberg and TradeWeb in an oligopoly market. These three players are trying to bring bond trading onto an digital platform, eliminating the need for clients to manually seek quotes from banks. Morningstar gave a wide moat rating and assign a fair value of $350 which suggests the share price is undervalued at $249.

#7 Vertex Pharmaceuticals (VRTX)

• Debt-to-Equity: 5%

• Revenue CAGR (5y): +29%

• Net Profit Margin: 35%

Vertex Pharma offers cystic fibrosis drugs to treat patients with a decline in the function of the lungs and digestive system. It has a potential market of 88,000 people worldwide and currently Vertex has more than 50% of the market share. Its drugs are protected by patents till 2037. Though a small market, the drug cost six-digit a year and has to be consumed throughout the lifetime. Morningstar assigned a narrow moat rating with a fair value of $314, suggesting the share price of $344 is currently overvalued.

#6 Copart (CPRT)

• Debt-to-Equity: 2%

• Revenue CAGR (5y): +19%

• Net Profit Margin: 31%

Copart operates as a platform for vehicle auctions, setting itself apart by specializing in the auctioning of vehicles that have been damaged due to natural disasters. One of its distinctive strengths lies in its close partnerships with insurers, who opt to delegate the auctioning process to Copart, benefiting from its ability to effectively manage substantial volumes of vehicles post-disaster. On the demand front, Copart boasts a vast member base estimated to number in the millions globally. This diverse membership encompasses vehicle dismantlers, rebuilders, exporters, used car dealerships, and individual buyers. The platform's two-sided nature solidifies its robustness, making it challenging to dislodge. Morningstar assigned a wide moat rating with a fair value of $77. The current share price of $86 is overvalued.