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The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.
US Outstanding Nonfinancial Bonds by Credit Quality
Through November 13, 2018
Source: Bloomberg Barclays
Low debt: Start by focusing on companies with healthy balance sheets. Look for companies that have low debt-to-EBITDA ratios. Today, just over half the companies in the index have a lower debt/EBITDA ratio than the benchmark’s 1.75x (Display).
Through October 31, 2018
*Cap-weighted, quarterly, trailing 12-month aggregate ratio for the index. EBITDA is earnings before interest, tax, depreciation and amortization.
Source: FactSet, S&P and AllianceBernstein (AB)
Self-funding profitability: Companies with low leverage and high levels of profitability are relatively resilient to the whims of market funding. When funding costs rise—or the funding window closes—their operations should not be affected because they don’t rely on the market to pay their bills or invest in expansion. We believe return on assets (ROA) is a reliable measure of profitability. Companies whose ROA exceeds asset growth are self-funding. These companies should be able to reward shareholders by returning surplus cash as dividends or in share buybacks, even in a more challenging market.
Low cyclicality: Consistently high profitability tells you a lot about a company’s business. Growth rates can vary dramatically for most companies through the macroeconomic cycle. But businesses that can maintain long-term profitability typically have profit models capable of performing well regardless of the macroeconomic backdrop. Companies with commodity-like businesses, such as banks or materials, often apply leverage to boost ROA from chronically low levels. Differentiated and defensible businesses with high ROA—and low leverage—can typically be found in sectors such as healthcare and technology, and parts of the consumer sectors.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.
John H. Fogarty is a Senior Vice President and Co-Chief Investment Officer for US Growth Equities. He rejoined the firm in 2006 as a fundamental research analyst covering consumer-discretionary stocks in the US, having previously spent nearly three years as a hedge fund manager at Dialectic Capital Management and Vardon Partners. Fogarty began his career at AB in 1988, performing quantitative research, and joined the US Large Cap Growth team as a generalist and quantitative analyst in 1995. He became a portfolio manager in 1997. Fogarty holds a BA in history from Columbia University and is a CFA charterholder. Location: New York
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David Wheeler, Erin Bigley, Ian McNaugher, Jayme Lisiewski | 03 March 2025This is a marketing communication. This information is provided by AllianceBernstein (Luxembourg) S.à r.l. Société à responsabilité limitée, R.C.S. Luxembourg B 34 305, 2-4, rue Eugène Ruppert, L-2453 Luxembourg. Authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results.
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