Since time immemorial, investors have been aware of the dangers of debt. Though it appears to make sense when rates are low and it appears to increase liquidity, extreme dependence on debt financing raises the risk profile of companies.

Consequently, companies with low debt levels have more options to spend cash to fund acquisitions or pursue other growth avenues in the future.

Perks of Low Debt  

When the economy turns sour, companies with lower debt on their books are affected less than firms carrying heavy liabilities. Lower debts make it easier for companies to tackle the situation and remain afloat during turbulent times.

Debt-free companies remain financially more stable in a high-rate environment. As their cash outflow in the form of interest payment is limited, these firms are able to keep their costs at a minimum and face little risk from interest rate changes as they are insulated from any rise in borrowing costs.

Low interest payment outflow also leaves more cash on hand for the company. Based on its growth potential, the firm can utilize the surplus cash accordingly. Management can either use the funds toward practical business opportunities for creating shareholder value, or distribute it through dividends. Further, a healthy liquidity position with low debt improves the stock’s ability to withstand the pressure exerted by an interest-rate hike.

Nevertheless, this does not mean that all debts are bad; and some of them can be pretty useful to create better value. But generally, from an investor’s perspective, the lower the debt, the more attractive the stock is.

5 Low-Debt Growth Stocks

Based on the Zacks stock screener and our style score system, we have selected 5 buy-rated low-debt stocks with Growth Scores of “A” and debt /total capital ratios of less than 0.1. This system gets you to stocks with bright prospects and attractive valuations.

Please note that the Zacks Style Score takes into account all valuation metrics to give us an actionable standard that helps identify stocks truly trading at a discount to intrinsic value. Back-tested results show that stocks with Growth Scores of ‘A,’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy), handily beat other stocks.

Integrated Device Technology, Inc. (IDTI - Snapshot Report)

Integrated Device Technology, Inc. designs, develops, manufactures and markets a broad range of high-performance semiconductor products and modules. Founded in 1980 and headquartered in San Jose, CA, the company's products include data  and telecommunications equipment such as routers, hubs, switches, cellular base stations and other devices; personal computers; and networked peripherals and servers, such as RAID arrays, servers and printers.

Zacks Rank: #1

Growth Score: A

Debt /total capital ratio: 0% vs. Industry Average: 21.9%

ZAGG Inc. (ZAGG - Snapshot Report)

ZAGG Inc. designs, manufactures and distributes protective clear coverings and accessories for consumer electronic and hand-held devices, worldwide. ZAGG's flagship brand, the invisibleSHIELD, manufactures a protective, high-tech patented film covering, designed for iPods, laptops, cell phones, digital cameras and other items.

The company continues to expand its product lines to offer additional electronic accessories for its tech-savvy customer base, as well as an extended array of invisibleSHIELD products for other industries.

Zacks Rank: #1

Growth Score: A

Debt /total capital ratio: 0% vs. Industry Average: 22.9%

MRV Communications, Inc. (MRVC - Snapshot Report)

MRV Communications, Inc. is a leading manufacturer and marketer of optical high-speed networks that integrate switching, routing, remote access and fiber optic transmission systems. It operates in two segments, Network Equipment and Network Integration.

Formerly known as MRV Technologies, Inc., the company changed its name to MRV Communications, Inc. in Apr 1992. MRV Communications, founded in 1988, is presently headquartered in Chatsworth, CA.

Zacks Rank: #1

Growth Score: A

Debt /total capital ratio: 0% vs. Industry Average: 21.9%

Codexis, Inc. (CDXS - Snapshot Report)

Codexis, Inc. is a leading protein engineering company that applies its technology to the development of biocatalysts for commercial manufacture of pharmaceuticals and fine chemicals. Codexis' proven technology implements biocatalytic solutions for facilitating rapid, cost-effective and sustainable manufacturing. The company was founded in 2002 and is headquartered in Redwood City, CA.

Zacks Rank: #1

Growth Score: A

Debt /total capital ratio: 0% vs. Industry Average: 54.2%

Gigamon Inc. (GIMO - Snapshot Report)

Gigamon Inc. is engaged in providing intelligent Traffic Visibility solutions for enterprises, data centers and service providers. Founded in 2004, the company is headquartered in Santa Clara, CA. Its products consist of GigaVUE, GigaSECURE, GigaSMART and GigaTAP lines. The firm has operations primarily in the U.S., the rest of North America, Europe, the Middle East, Africa, and the Asia Pacific.

Zacks Rank: #2

Growth Score: A

Debt /total capital ratio: 0% vs. Industry Average: 17.3%

Conclusion

Features like low debt and robust prospects make these 5 stocks great picks for a winning portfolio.