Weak balance sheets no drag on stocks

Stocks with the weakest balance sheets have climbed more than 8 percent in 2014 and 94 percent since the end of 2011, generating almost twice the gain in the Standard & Poor's 500 Index (SPX) over that period, according to data compiled by Bloomberg and Goldman Sachs Group Inc. Shares in the category this year are beating those that most investors consider the bull market's leaders, such as small caps and biotechnology, which tumbled in March. Helped by rising bond issuance and falling defaults, stocks from Tenet Healthcare Corp. to Frontier Communications Corp. are advancing even as Federal Reserve policy makers take steps to end unprecedented economic stimulus. "Having a weaker balance sheet isn't a liability or a drag on potential company performance at this point," David Kostin, chief U.S. equity strategist at New York-based Goldman Sachs, said in a May 20 phone interview. The highest-rated group is up 3 percent since December after rallying 28 percent in 2013, according to data compiled by Goldman Sachs.

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