It is always a great idea to buy stocks that are not only debt free, but, also have solid cash flows. These stocks also tend to provide great dividends, but, since the prices are high for such stocks, their dividend yields may not always be the best. Take a look at a few stocks that are debt free and can be good investment bets.
NMDC is a government owned company that is into iron ore mining. Recently, the prices of iron ore have been moving higher, which augurs well for the company.
Like several other government owned companies like HPCL, Coal India, Powergrid etc., NMDC is also an excellent play on dividends.
The stock is available at a dividend yield of around 4 per cent. Dividends are also tax free upto a sum of Rs 10 lakhs.
NMDC is not only a debt free company, but, is also a cash rich company with a stock pile of cash in its books.
NMDC: Fundamentally undervalued
NMDC has performed reasonably well over the last few quarters. Net profits have grown from Rs 511 crores for the quarter ending March 31, 2017 to Rs 886 crores for the quarter ending Dec 31, 2017.
The company in all probability will do an EPS of Rs 15 for 2018-19. This makes the stock available at a p/e of just about 9 times.
With a steady cash flow, a decent dividend yield of around 4 per cent and firming iron ore prices, the stock of NMDC remains a good bet at the current levels. The risk to a downside remain limited at current market price. Check stock quote of NMDC here
Kaveri Seed Company
Kaveri Seed Company is into the manufacture of genetically enhanced seed and has been doing so for for more than three decades. The company has 600 acres of farm land with a dedicated team of researchers.
The company has a R&D programme for crops maize, cotton, bajra, sorghum, sun flower, rice and several vegetable crop.
The company in the past has been over reliant on cotton seeds, which make-up bulk of the turnover of the company.
However, it is now gradually shifting its focus to vegetable seeds, which will is a high margin business. Kaveri Seed is also looking at improving its distribution network tremendously in the coming months.
Kaveri Seed: Expanding areas and market share
Kaveri Seeds is looking at the possibility of expanding its market share. It has already improved its market share in areas like Gujarat and Maharashtra due to better penetration. The company is also looking at aggressively developing areas like Orissa, Chattisgarh and Madhya Pradesh.
All these initiatives are likely to bear fruit at the company. Kaveri Seed is a debt free company and also has a small equity with a large promoter holding.
The company's shares are available at just 12 times likely EPS of Rs 41 in 2019. If you value the stock at a p/e of 18 times, the stock should trade at Rs 738 at the very least in the coming two years. Check stock quote of Kaveri Seed here
Tata Sponge Iron
Tata Sponge Iron is a debt free company with a decent cash on its books. What makes the stock an interesting pick are a number of reasons. First, are the company's plans to raise capacity to 425,000 tonne per annum from 390,000 tonne per annum.
This should augur well for the company in terms of generating further cash flow. The company is also planning to enter long steel products and this project is likely to be completed in the next few years.
Over the last few quarters the net profits of the company have been seeing a sharp upward momentum.
Net profits has jumped from Rs 21.20 crores for the quarter ending March 31, 2017 to Rs 36 crores for the quarter ending Dec 31, 2017. The EPS for the quarter ending Dec has swelled to Rs 23.37.
Tata Sponge: Huge opportunities
Tata Sponge Iron has huge opportunities going forward especially on account of manufacturing facilities that are very close to high quality iron ore mines.
The company also has an integrated power plant and also sells surplus power that is generated. For the quarter ending Dec 31, 2017, the company reported an EPS of Rs 23.37. Even if the company does an EPS of Rs 90 considering all the expansions plans by 2019-20, the stock is available at a p/e of just 11 times this EPS. The stock is not a bad bet at Rs 1100, considering the low equity, free cash flow and huge cash on the books.
Taxation on debt free companies
It is also important to remember that debt free company stocks always command high p/e multiple. Also, one must remember the tax liability that arises in the case of such stocks. Recently, the Union Budget 2017-18 recommended a long term capital gains of 10 per cent on stocks.
Shares and stocks did not command any long-term capital gains in the previous years. At the moment, short term capital gains tax on shares is levied at 15 per cent. It is important that investors note the same before investing in shares and stocks.
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