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Zacks.com featured highlights include: Procter & Gamble, MarineMax, Saia, Quanex Building Products and Cooper Tire & Rubber
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For Immediate Release
Chicago, IL – January 14, 2021 – Stocks in this week’s article are The Procter & Gamble Company (PG - Free Report) , MarineMax, Inc. (HZO - Free Report) , Saia, Inc. (SAIA - Free Report) , Quanex Building Products Corporation (NX - Free Report) and Cooper Tire & Rubber Company .
Buy These 5 Low Leverage Stocks to Avoid Debt-Related Woes
Each and every company needs substantial amount of funds, technically referred to as capital, to run its operations smoothly and expand the same. Here comes the concept of leverage, which, in terms of corporate finance, refers to the use of borrowed capital since no company can run endlessly on its own funds.
Now this borrowed capital can be obtained by a firm either through debt or through equity. Empirically, it has been found that most companies prefer debt financing over equity financing because of its easy and cheap availability.
Yet, debt financing has its share of drawbacks. In particular, when the amount of debt a company bears becomes exorbitant, debt financing turns into a burden. This is because a high degree of financial leverage means high interest payments, which affect the company's bottom line.
Although the stock market has improved to some extent from the initial slump immediately after COVID-19 struck the world economy, any other uncertainty can once again disrupt that balance.
So, to avoid huge losses at times of crisis, a prudent investor should choose stocks that bear low leverage since a debt-free corporation is rare to find. Therefore, measuring the leverage level of a particular stock forms an integral part of a safe investment procedure.
Several leverage ratios have been developed to measure the amount of debt a company bears and the debt-to-equity ratio is one of the most common ratios.
Analyzing Debt/Equity
Debt-to-Equity Ratio = Total Liabilities/Shareholders’ Equity
This metric is a liquidity ratio that indicates the amount of financial risk a company bears. A company with a lower debt-to-equity ratio shows improved solvency for a company.
With the year 2020 almost at its end, investors might be eyeing stocks that have exhibited solid earnings growth year to date. But if a stock bears a high debt-to-equity ratio, in times of economic downturns, its so-called booming earnings picture might turn into a nightmare.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include: Procter & Gamble, MarineMax, Saia, Quanex Building Products and Cooper Tire & Rubber
For Immediate Release
Chicago, IL – January 14, 2021 – Stocks in this week’s article are The Procter & Gamble Company (PG - Free Report) , MarineMax, Inc. (HZO - Free Report) , Saia, Inc. (SAIA - Free Report) , Quanex Building Products Corporation (NX - Free Report) and Cooper Tire & Rubber Company .
Buy These 5 Low Leverage Stocks to Avoid Debt-Related Woes
Each and every company needs substantial amount of funds, technically referred to as capital, to run its operations smoothly and expand the same. Here comes the concept of leverage, which, in terms of corporate finance, refers to the use of borrowed capital since no company can run endlessly on its own funds.
Now this borrowed capital can be obtained by a firm either through debt or through equity. Empirically, it has been found that most companies prefer debt financing over equity financing because of its easy and cheap availability.
Yet, debt financing has its share of drawbacks. In particular, when the amount of debt a company bears becomes exorbitant, debt financing turns into a burden. This is because a high degree of financial leverage means high interest payments, which affect the company's bottom line.
Although the stock market has improved to some extent from the initial slump immediately after COVID-19 struck the world economy, any other uncertainty can once again disrupt that balance.
So, to avoid huge losses at times of crisis, a prudent investor should choose stocks that bear low leverage since a debt-free corporation is rare to find. Therefore, measuring the leverage level of a particular stock forms an integral part of a safe investment procedure.
Several leverage ratios have been developed to measure the amount of debt a company bears and the debt-to-equity ratio is one of the most common ratios.
Analyzing Debt/Equity
Debt-to-Equity Ratio = Total Liabilities/Shareholders’ Equity
This metric is a liquidity ratio that indicates the amount of financial risk a company bears. A company with a lower debt-to-equity ratio shows improved solvency for a company.
With the year 2020 almost at its end, investors might be eyeing stocks that have exhibited solid earnings growth year to date. But if a stock bears a high debt-to-equity ratio, in times of economic downturns, its so-called booming earnings picture might turn into a nightmare.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1245813/buy-these-5-low-leverage-stocks-to-avoid-debt-related-woes
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Visit: www.Zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.