U.S. Debt Outlook: Watch out for 2012

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(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Institutional data sourced from Fidelity. Debt data sourced from Finviz.com)

For those who have lost count, the US national debt now stands at $14.8 trillion (just $490 billion shy of the nation’s GDP), and Congress has until December 23rd to approve $1.2 trillion in savings over ten years. Comforting?

Despite all the buzz surrounding the super committee, it’s unlikely the committee’s final decisions will have a significant impact on the fight to restore the national debt.

Sure, failure to succeed could spark another downgrade of the US government’s credit rating, but according to Reuters the actions of the super committee are secondary to the make-it-or-break-it debt related policies that will come up for debate in 2012. Analysts can anticipate “what some are calling a “perfect storm” for the nation’s economic affairs.”

We decided to highlight the following from Reuter’s list of 2012 potential-debt-Armageddon events to look forward to:

- To start with, November 2012 will see what promises to be a memorable presidential election. Not to mention the election of all members of the House of Representatives, and one-third of the Senate.

- 2012 brings with it the expiration of the Bush-era tax cuts that have lowered taxes across the board since 2001 and 2003. Obama wants to keep cuts in effect only for families earning less than $250k per year.

- Furthermore, “Congress will have to decide on fixing a glitch in the Alternative Minimum Tax so that middle-class Americans are not forced to pay a tax that originally was aimed only at the wealthiest.”

- The debate over raising the US debt ceiling could turn into a full-on battle when the issue (most likely) reopens for discussion in Congress by the end of 2012.

On the topic of debt, we wanted to analyze high-debt companies, and evaluate their prospects in this de-leveraging environment.

To create the list below, we started with a universe of about 200 stocks with high debt / equity ratios – an indicator that shows how much of a company’s capital structure is made up of debt (the higher the ratio, the higher the debt).

To refine the list, we collected data on institutional transactions, and identified the companies that have seen significant institutional selling during the current quarter.

Big money managers seem to be worried about these high-debt companies–do you agree?

List sorted by the Debt / Equity ratio.

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1. The Goldman Sachs Group, Inc. (GS): Provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Total Debt / Equity ratio at 4.29. Net institutional sales in the current quarter at -13.6M shares, which represents about 3.07% of the company's float of 443.47M shares.

2. Frontline Ltd. (FRO): Engages in the ownership and operation of oil tankers and oil/bulk/ore (OBO) carriers. Total Debt / Equity ratio at 3.76. Net institutional sales in the current quarter at -1.8M shares, which represents about 3.49% of the company's float of 51.52M shares.

3. Belo Corp. (BLC): Operates as a television company. Total Debt / Equity ratio at 3.32. Net institutional sales in the current quarter at -8.2M shares, which represents about 8.81% of the company's float of 93.09M shares.

4. GATX Corp. (GMT): Operates, and manages assets in the rail, marine, and industrial equipment markets. Total Debt / Equity ratio at 2.77. Net institutional sales in the current quarter at -2.3M shares, which represents about 4.98% of the company's float of 46.22M shares.

5. Dean Foods Co. (DF): Operates as a food and beverage company in the United States. Total Debt / Equity ratio at 2.56. Net institutional sales in the current quarter at -7.7M shares, which represents about 4.3% of the company's float of 178.92M shares.

6. LDK Solar Co., Ltd. (LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Total Debt / Equity ratio at 2.46. Net institutional sales in the current quarter at -6.0M shares, which represents about 8.81% of the company's float of 68.09M shares.

7. Bally Technologies, Inc. (BYI): Designs, manufactures, operates, and distributes advanced technology-based gaming devices, systems, and server-based solutions worldwide. Total Debt / Equity ratio at 2.42. Net institutional sales in the current quarter at -9.1M shares, which represents about 21.13% of the company's float of 43.07M shares.

8. Cracker Barrel Old Country Store, Inc. (CBRL): Engages in the operation and development of the Cracker Barrel Old Country Store restaurant and retail concept in the United States. Total Debt / Equity ratio at 2.05. Net institutional sales in the current quarter at -1.6M shares, which represents about 8.19% of the company's float of 19.53M shares.

9. Harbinger Group Inc (HRG): Operates as the holding company that focuses on acquiring interests in companies that operate in diverse range of industries. Total Debt / Equity ratio at 2.02. Net institutional sales in the current quarter at -617.5K shares, which represents about 6.56% of the company's float of 9.42M shares.

10. Covanta Holding Corporation (CVA): Provides waste and energy services in the Americas, Europe, and Asia. Total Debt / Equity ratio at 1.99. Net institutional sales in the current quarter at -8.0M shares, which represents about 6.28% of the company's float of 127.39M shares. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Credit and Debt , Stocks


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