Bill Gross Warns of Implosion: Low-Debt Stocks
Bill Gross makes a good point: The world has too much debt, and you cant solve a debt problem by using more debt.
Gross, co-founder of Pacific Investment Management (PIMCO), wrote a gloomy investment letter titled "Toward the Paranormal," an apparent sequel to the fund's famously coined term: "the new normal" He writes: "How many ways can you say 'it's different this time?' There's 'abnormal,' 'subnormal,' 'paranormal' and of course 'new normal.'"
The term, "The New Normal" was coined several years ago by his chief co-investment officer Mohamed El-Erian. It describes expectations for a decade of low economic growth, relatively high unemployment, and meager stock market returns.
But, in his own words, the term already has "an almost antiquated vapor to it that reflected calmer seas in 2011 as opposed to the possibility of a perfect storm in 2012 ... It's as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century."
"The financial markets are slowly imploding -- delevering -- because there's too much paper and too little trust. Goodbye "Old Normal," standby to redefine "New Normal," and welcome to 2012's "paranormal."
He says that 2012 will be characterized by "credit and zero-bound interest rate risk" and less incentives for lenders to extend credit. He adds that investors they should lower their return expectations for 2012, predicting 2%-5% returns on investments in stocks, bonds and commodities.
Business section: Investing ideas
At the heart of Gross's gloomy outlook is the prevalence of debt. "All developed economies from 1971 and beyond learned to use credit and the expansion of debt to drive growth and prosperity. Almost all developed and some emerging economies became hooked on credit as a substitution for investment in tangible real things -- plant, equipment and an educated labor force. They made paper, not things, so much of it it seems, that they debased it."
Bill Gross is clearly worried by rising debt levels. So, which low-debt companies are worth a closer look?
For ideas, we collected data on institutional money flows, and identified 7 low-debt stocks that have seen significant institutional buying during the current quarter.
Big money managers have extensive resources to analyze investing ideas. So if they're buying a certain stock, it's worth paying close attention.
Do you agree with this bullish sentiment? Use this list as a starting point for your own analysis.
List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)
1. Activision Blizzard (NAS: ATVI) : Activision Blizzard, publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Long-term debt / equity at 0%, while total debt / equity at 0%. Net institutional purchases in the current quarter at 18.7M shares, which represents about 4.13% of the company's float of 453.24M shares.
2. NTT DOCOMO: Provides wireless telecommunications services, packet communications services, and satellite mobile communications services in Japan. Long-term debt / equity at 5%, while total debt / equity at 6%. Net institutional purchases in the current quarter at 1.7M shares, which represents about 22.31% of the company's float of 7.62M shares.
3. Kinross Gold (NYS: KGC) : Engages in mining and processing gold ores. Long-term debt / equity at 9%, while total debt / equity at 10%. Net institutional purchases in the current quarter at 36.5M shares, which represents about 3.23% of the company's float of 1.13B shares.
4. Mosaic (NYS: MOS) : Engages in the production and marketing of concentrated phosphate- and potash-based crop nutrients for the agriculture industry worldwide. Long-term debt / equity at 6%, while total debt / equity at 7%. Net institutional purchases in the current quarter at 22.1M shares, which represents about 4.95% of the company's float of 446.15M shares.
5. Public Storage: Operates as a real estate investment trust (REIT). Long-term debt / equity at 5%, while total debt / equity at 5%. Net institutional purchases in the current quarter at 5.6M shares, which represents about 3.94% of the company's float of 142.09M shares.
6. Silver Wheaton (NYS: SLW) : Operates as a silver streaming company worldwide. Long-term debt / equity at 2%, while total debt / equity at 8%. Net institutional purchases in the current quarter at 19.0M shares, which represents about 5.39% of the company's float of 352.72M shares.
7. Whole Foods Market (NYS: WFM) : Engages in the ownership and operation of natural and organic food supermarkets. Long-term debt / equity at 1%, while total debt / equity at 1%. Net institutional purchases in the current quarter at 7.7M shares, which represents about 4.7% of the company's float of 163.98M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Institutional data sourced from Fidelity. Accounting data sourced from Google Finance.
At the time this article was published The Motley Fool owns shares of Activision Blizzard and Whole Foods Market. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and Activision Blizzard. Motley Fool newsletter services have recommended creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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