Investing in Profitable, Unleveraged US Companies Avoids the Trap of Rising Interest Expenses

By Jeffrey Cohen, President and Founder, US Advanced Computing Infrastructure, Inc. A consultancy and Investment Advisory Firm.

We recently wrote two articles documenting how US companies are paying significantly more in interest expenses, and those are likely to increase further. Companies with significant business risk are paying, on average, 13.64% on new money, in a basket of diversified bonds, according to ICE Data Services, High Yield Bonds, as reported in the Wall Street Journal online on August 11, 2023.

We are developing a new strategy for clients and investors that want to hold US common stock securities in a portfolio, or to go long.

We only allow our quantitative model to analyze US companies that are profitable and unleveraged? What if our minimum historical risk and maximum expected return model, a modified Sharpe ratio run through an algorithm developed for quantum computers, was only looking at companies largely insulated from rising corporate debt costs?

A few things happen:

1. We lose about two-thirds of the US common stocks, down to 870.
2. The historical price volatility of a basket of those stocks is 25% lower.
3. There are no longer any high performers on a risk-return basis when compared to the three stock index ETFs: $SPY $QQQ $IWM. The index ETFs do better than every individual stock. We…