3 Stocks With Zero/Low Debt And High Cash Conversion To Add To Your Portfolio Given Rising Interest Rates

Updated: Friday, June 10, 2022, 11:06 [IST]

In a rising interest scenario that has been seen in the last 2 monetary policy outcome and as similar stance is likely to be followed in upcoming MPCs, if we talk about stocks, those with relatively low debt or zero debt will benefit. Furthermore, in the process companies with a high cash conversion ratio tend to benefit to a higher degree. The cash conversion ratio typically compares a company's operating cash flows with its profitability and is generally calculated using the formuls

Cash conversion ratio: Operating cash flow/ EBITDA

The ratio holds importance as it enables judgement about the company's ability to convert its profits into cash. This ratio further facilitates to know about the company's cash generation and also helps us to assess a company's earnings quality.

Likewise, here are 3 stocks that qualify these 2 criterions and also serve on other metrics, so can be good bets given the rising interest rate.

Coal India

This is a Maharatna PSU entity that also features as a Monopoly stock. The company is the largest coal producer in the world. And as the economy gears up the company shall thrive owing to higher power demand. Also, the current crisis at hand due to the ongoing Russia-Ukraine war is considered positive for the company given the disruption in imported coal.Now coming to the scrip, the scrip is fundamentally sound given its attractive valuations, high dividend yield, zero debt and high return on equity of over 40%.

Brokerage firm ICICI Direct is also bullish on the counter and suggested a target price of Rs. 213 i.e. a potential upside of over 8%. The rationale given out by the brokerage is The brokerage expects the stock to continue with its up move and head towards Rs 213 levels in the coming weeks as it is the 123.6% external retracement of the last decline (Rs 209-165).

IRCTC

This is another monopoly large cap stock offering railways ticketing and catering services. The company is another debt free entity and with the recovery in travel and toursism the stock that has taken a sharp beating of 50% from its all time high price of Rs. 1279.26 can be a good pick at the current times. Also, the stock is again a high cash conversion company.

The company's management is of the view that normalcy shall be restored by the end of the first quarter of Fy23.

"There are some downside risks that will act as an overhang in the near-term," said Jinesh Joshi, analyst at Prabhudas Lilladher Pvt. Ltd. For example, reversal of the 2S sitting class to unreserved category, which will come into effect in July, would impact ticketing volumes in FY23, he said.

Vedanta

This metals and mining company is another pick and in the current inflationary times is resilient. The stock is available at cheap valuations and offer a high dividend. For the current fiscal only, the firm has declared a hefty dividend yield of 10.5%.

The firm's debt is at Rs. 38,195 crore with debt to equity in Fy 21 at 0.81. Company's other strength is its strong financials and hence a high Piotroski Score. The company's other ventures such as its foray into semiconductor space is also suggestive of its futuristic orientation.

Disclaimer

While the above 3 stocks are fundamentally strong and are being offered at attractive price post the correction, please do not consider it as an investment call in them. Investors should engage in their own due-diligence before betting on any market linked security.