Over the next five years, U.S. investment-grade companies have to refinance a record 1.6 trillion dollars of debt, the Financial Times reported on Jan. 3. Companies with junk ratings have even more ($1.87 trillion) to refinance over the same period.
“Converts are going to stay popular because we have a massive maturity wall that’s about to hit,” said Ken Wallach, co-head of global capital markets at law firm Simpson Thacher. “In 2020 and 2021, companies issued all this five-year paper in a much lower rate environment during the height of the pandemic.”
Eleven of Barchart.com’s top 100 stocks have done an excellent job reducing their long-term debt or adding to cash over the past four years.
Here are three of them to buy now.
Ultrapar Participacoes S.A.
As of the end of September 2023, Ultrapar Participacoes S.A. (UGP) had net debt of $1.54 billion. In September 2019, it was $2.19 billion, a reduction of 29%. It is 73rd out of the top 100 stocks, up 136% over the past year.
UGP’s history dates back to 1937 when Ernesto Igel founded Empresa Brasileira de Gás a Domicílio to distribute liquified petroleum gas. It began with three trucks and 166 clients. Ultrapar Participacoes S.A. was created in 1953.
Today, the company distributes liquefied petroleum gas, renewable electricity, compressed natural gas, and many other fuel-related products to residential, commercial, and industrial consumers. In addition, it operates AmPm convenience stores, Ipiranga service stations, and several other businesses, including digital payments. It is headquartered in São Paulo.
In the nine months ended Sept. 30, 2023, its revenue was $18.55 billion, up 18% from $15.75 billion in the same period in 2019. Its operating income through Sept. 30 was $531.5 million, 69% higher than $314.3 million in 2019.
Approximately 33% of the shares are held by Ultra S.A. and Parth do Brasil Participações, holding companies of the founding Igel family and Patria Private Equity.
Nu Holdings
Nu Holdings (NU) is 76th in the top 100, up 144% over the past year. The Brazilian digital banking and technology platform remains a holding of Warren Buffett’s. Berkshire Hathaway (BRK.B) owns 2.3% of the company. Its 107.2 million shares are worth nearly $1 billion. Buffett first bought the shares in Q4 2021.
As of Sept. 30, 2023, Nu had net cash of $1.98 billion. In January 2020, its net cash was just $26.1 million, a 30-fold increase in net cash over 45 months. It is 91st out of the top 100 stocks, up 77% over the past year.
Part of Nu’s problem over the past four years is the devaluation of the Brazilian real relative to the U.S. dollar. On Dec. 31, 2019, a U.S. dollar was worth 4.0196 real. As of Sept. 30, 2023, the exchange was 4.9941, 24% higher, translating into a lower net cash position. As of the end of September, it was just under $2 billion.
According to the Motley Fool, it had 5.4 million customers in Brazil, Mexico, and Colombia at the end of Q3 2023. Even better, more than half of Brazilian adults are on its platform, with plenty of room to expand in Mexico and Columbia.
As the Fool points out, Nu’s net interest margin in Q3 2023 was a whopping 18.8%, an all-time high. Jamie Dimon would kill for these. As interest rates come down, business could get even better.
Nu is the most appealing of the three stocks, but I can’t help myself. I love Latin American businesses.
SentinelOne
SentinelOne (S) has the unique distinction of taking up the S stock symbol after T-Mobile U.S. (TMUS) acquired Sprint in April 2020. It provides AI cybersecurity across all points in the enterprise through its Singularity platform products.
As of Oct. 31, 2023, SentinelOne had net cash of $775.0 million. In January 2020, its net cash was just $26.1 million, a 30-fold increase in net cash over 45 months. It is 91st out of the top 100 stocks, up 77% over the past year.
The company was founded in January 2013. It released its first endpoint security solution in February 2015. It went public in June 2021 at $35 a share.
“We pioneered the world’s first purpose-built AI-powered extended detection and response, or XDR, platform to make cybersecurity defense truly autonomous, from the endpoint and beyond. Our Singularity Platform instantly defends against cyberattacks - performing at a faster speed, greater scale, and higher accuracy than possible from any single human or even a crowd,” stated its IPO prospectus.
It had 4,700 customers at the time, up from 2,700 a year earlier. As of Oct. 31, 2023, it had 11,500 customers, up from 9.250 in Oct. 2022. Of those customers, 1,060 spent over $100,000 annually on the company’s platform.
For the nine months ended Oct. 31, 2023, its revenues were $447.0 million, 51% higher than a year earlier. Its U.S. revenue accounted for 64% overall. In early December, when it reported its Q3 2024 results, it said it would generate $616 million in revenue in 2024, 46% higher than in 2023, with a non-GAAP operating margin of -20%, down significantly from -49% in 2023.
It will be profitable in late 2025 or early 2026 at this rate.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
