“Once a technology company enters our universe of companies,” explained Thomas Vass, the investment advisor to the newsletter, “one of the variables that we monitor is their long term debt. In our patented methodology of selecting technology stocks, a company that dramatically increases long term debt loses a degree of sovereignty over decisions related to technological innovation.”
Vass cited the tough global economic conditions, which are causing top line revenues to decrease for most American technology companies. “The companies are taking on increased long term debt at the very moment that their sales are being affected by the global economic slow-down. The restrictive covenants in their debt agreements will tend to lock them into existing declining markets selling their increasingly technologically obsolete products.”
Vass explained that companies that have over 30% long term debt to stockholder’
As an example of the newsletter’s technology companies that have dramatically increased long term debt, Vass provided the following table:
Company and Symbol
3M MMM 2,824&
Nucor NUE 922
Multi-Color LABL 0
PerkinElmer PKI 234
Lennox International LII 95
PPG Ind. PPG 1,181&
Triumph Group TGI 120
Tennant TNC 2.47
Joy Global JOYG 396
The Technology Stock Advisor
“Some of these companies have been in our active stock lists for many years,” said Vass. “They have been terrific investment candidates in the past, but the tough global markets are causing senior management to adopt financial strategies that are not optimal for the new open, global markets that feature fast innovation life-cycles. Long term debt is cheap today, but succumbing to the lure of cheap debt today will threaten the company’s long term viability to innovate.”
The relationship between technological innovation and long term debt as a criteria for stock selection is explained in one of Vass’ books Predicting Technology: Identifying Future Market Opportunities and Disruptive Technologies, (2007).
