Maximize Your Returns and Minimize Your Risk with These Undervalued Zero Debt Small Caps!
Maximize Your Returns and Minimize Your Risk with These Undervalued Zero Debt Small Caps!
It is often considered that investing in Debt is safer than Equity, let's discuss how that's not necessarily true !
When it comes to investing, it's important to think about the risks and potential rewards of different options. Debt investments may seem safe, with their low volatility and fixed rate of return, but they actually carry a big risk - the risk of default by the issuer. If the company issuing the debt can't make payments, investors could lose some or all of their investment.
Why non-debt small caps are the best investment
On the other hand, zero debt small cap companies can offer a potentially safer option. These companies don't have any outstanding debt, so they're not at risk of default. While zero debt small cap equities may be more volatile than debt investments, they also offer the potential for the entire upside. In other words, the value of these investments may fluctuate more, but investors have the chance to earn much higher returns if the company does well.
It's important to carefully consider the financial health and stability of zero debt small cap companies before investing. These companies should have a history of high profitability and strong earnings visibility. This helps make sure the company is set up for future success. You can easily compare debt’s coupon rate with the earnings yield (1/PE) of such small caps. (Implying a 4% coupon rate bond is same as a 25x PE company)
Another thing to keep in mind is that small cap companies are often mis-priced, since larger institutions may not be as interested in smaller companies. This can create opportunities for individual investors to take advantage of undervalued small cap stocks.
This is exactly what we do in our CORE Portfolio- (Read about the stocks)
The Earnings Yield of the portfolio is 8% (or, TTM PE of 12.37x)
With a DE ratio for our portfolio is 3%, and Average Revenue Growth of ~10%
Each of the companies have stable profitability (ROE & Operating Margins)
The trade-off of equity vs. debt
Overall, while zero debt small cap companies may be more volatile than debt investments, they offer the potential for big returns and can be a safer option because there's no risk of default. By carefully researching and selecting these companies, investors can potentially minimize risk while still enjoying the potential for strong returns