It seems there’s nowhere to run or hide from the scourge of higher interest rates.
The US Federal Reserve has raised its benchmark rate sharply last year as it battles four-decade-high inflation.
Back home, the cost of borrowing has shot up in tandem.
Mortgage loans offered by the three local banks now hover around 3.5% to over 4%, a sharp rise compared with the 1+% offered by DBS Group (SGX: D05) in late 2021.
Investors not only face higher rates on their mortgages but are also seeing a negative impact on the REIT sector and non-REIT companies with significant debt on their balance sheets.
There’s good news, though.
If you’re seeking shelter from the interest rate storm, you can park your money in companies with low or no debt that generate copious amounts of free cash flow.
Here are four such stocks that could make it to your buy watchlist.
VICOM Limited (SGX: WJP)
VICOM is a provider of vehicle test and inspection services.
The group also provides a comprehensive range of inspection and testing services for fields such as mechanical, civil engineering, and biochemical.
As of 30 June 2022, VICOM’s balance sheet held no debt, thus keeping the group safe from rising interest rates.
For its fiscal 2022’s third quarter (3Q2022) business update, VICOM saw revenue inch up 4% year on year to S$27.4 million.
Net profit crept up 2% year on year to S$6.5 million.
The inspection specialist sported S$58.8 million of cash on its balance sheet and also generated S$14.7 million of free cash flow in the first nine months of 2022 (9M2022).
With its clean balance sheet and healthy free cash flow, VICOM investors should remain worry-free even if rates are hiked further.
Sheng Siong Group Ltd (SGX: OV8)
Sheng Siong operates one of the largest supermarket chains in Singapore with 66 outlets across the island.
The group also offers more than 1,500 products under its 23 house brands.
Sheng Siong turned in an admirable performance for 9M2022 with revenue dipping slightly by 1.9% year on year to S$1 billion.
Gross profit, however, improved by 1.3% year on year with higher gross margins, and net profit stayed flat year on year at S$100.4 million.
Like VICOM, Sheng Siong also maintains a clean balance sheet with S$228.6 million in cash along with zero debt as of 30 September 2022.
Meanwhile, the retailer also generated a healthy free cash flow of S$104.2 million for 9M2022, just a tad shy of the S$106.8 million churned out a year ago.
Sheng Siong also signed a lease agreement for its fifth store in China that will be operational by 2Q2023.
Valuetronics Holdings Limited (SGX: BN2)
Valuetronics is an electronics manufacturing service (EMS) provider that designs and develops products for its customers.
The group has two main segments – industrial and commercial electronics products and consumer electronics products.
Valuetronics held no debt as of 30 September 2022 and had HK$979.3 million of cash on its balance sheet.
The EMS company reported a resilient set of financial numbers for its fiscal 2023’s first half (1H2023).
Revenue inched up 3.6% year on year to HK$1.05 billion while net profit improved by 2.2% year on year to HK$57.9 million.
The group also generated HK$112.7 million of free cash flow for 1H2023, a sharp reversal from the negative free cash flow a year ago.
It also paid out an interim dividend of HK$0.04, unchanged from a year ago.
PropNex Ltd (SGX: OYY)
PropNex is an integrated real estate services provider with 12,065 sales professionals as of 2 November 2022.
The group has a presence in Singapore as well as Malaysia, Vietnam, Australia, Indonesia, and Cambodia.
PropNex pulled off a commendable performance for 9M2022 with revenue rising 2.1% year on year to S$730.8 million.
Net profit, however, fell by 6.7% year on year to S$46.5 million.
Similar to the three companies above, PropNex’s balance sheet held zero debt along with S$127.3 million of cash as of 30 September 2022.
The property services company also saw S$39.4 million of free cash flow generated in 9M2022.
However, investors should note that additional property cooling measures were imposed on 30 September last year.
Looking ahead, these measures could have a dampening effect on PropNex’s business in the fourth quarter of 2022 and for this year as well.
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Disclaimer: Royston Yang owns shares of VICOM Limited.