High-Debt Stocks May Get Crushed By Looming ‘Wall of Maturities’

High-Debt Stocks May Get Crushed By Looming 'Wall of Maturities'

During the period of post-financial crisis quantitative easing (QE), when central banks led by the Federal Reserve sent interest rates down to historic lows, many corporations saw a golden opportunity to borrow cheaply. Now many of those loans and bonds are reaching their due dates and maturity dates, raising concerns among investors about the ability of heavily indebted companies to repay or refinance. “It’s number one for us,” says Rob Almeida, global investment strategist for MFS Investment Management, in remarks to the Financial Times.

Meanwhile, Goldman Sachs advises investors to be wary of companies with weak balance sheets, and they created a basket of 50 such stocks that includes these eight: CBS Corp. (CBS), CenturyLink Inc. (CTL), Hewlett-Packard Enterprise Co. (HPE), MGM Resorts International (MGM), Williams Cos. Inc. (WMB), Baker Hughes, a GE Co. (BHGE), Nielsen Holdings PLC (NLSN), and The Kraft Heinz Co. (KHC). Goldman uses Altman Z-scores to assess balance sheet strength, as presented in the table below.

8 Stocks With Weak Balance Sheets

  • CBS, 0.5
  • CenturyLink, 0.6
  • Hewlett-Packard Enterprise, 0.8
  • MGM Resorts, 1.0
  • Williams, 0.6
  • Baker Hughes, 0.8
  • Nielsen, 1.0
  • Kraft Heinz, 1.1
  • Median stock in Goldman’s weak balance sheet basket, 1.3
  • Median stock in S&P 500 (excluding financials, real estate, utilities), 3.4
  • Median stock in Goldman’s strong balance sheet basket, 11.1

Source: Goldman Sachs, “Anatomy of our US Portfolio Strategy Thematic and Sector Baskets”

Significance For Investors

Looking Ahead

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