Find Companies Improving Their Balance Sheets in Tough Markets

When stocks are rallying and interest rates are low, it’s easy for companies to expand by either selling more shares or taking on debt.

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  • But selling too many shares dilutes existing shareholders and may spark a backlash. And when debt comes due and has to be refinanced, markets may balk. So companies that are improving their balance sheet now could be big winners down the line.

    One area where balance sheet improvement could help boost shares are with big media companies. There’s been a slowdown in advertising revenue, and competition for streaming services has kept profitability low.

    Paramount Global (PARA) is moving to improve its balance sheet. The company just received a cash infusion, which is being used to pay down debt.

    While the media giant still has more debt than stock market equity following a 60 percent loss in shares right now, getting the debt level under control could help fuel a move higher for the media giant.

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  • Action to take: Shares are fairly valued on an earnings basis, but the company trades for about half the book value of its intellectual properties. And while shareholders just took a hit with a reduced dividend, today’s buyers are more likely to see increases in the future, making the stock a buy today.

    For traders, shares are still near a 52-week low, but could see a move higher from here. The September $17.50 calls, last going for about $0.98, offer mid-double-digit returns on a move higher.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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