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Image: Bigstock featured highlights include: Eagle Materials, Quanex Building Products, D.R. Horton, Green Brick Partners and Primoris Services

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For Immediate Release

Chicago, IL – March 19, 2021 – Stocks in this week’s article are Eagle Materials Inc. (EXP - Free Report) , Quanex Building Products Corporation (NX - Free Report) , D.R. Horton, Inc. (DHI - Free Report) , Green Brick Partners, Inc. (GRBK - Free Report) and Primoris Services Corporation (PRIM - Free Report) .

Buy These 5 Low Leverage Stocks to Avoid Market Uncertainties

Leverage, otherwise termed as debt financing, refers to the use of exogenous funds by corporations to run their operations smoothly and expand the same. Although there is an option for equity financing, historically, debt financing has been preferred over equity because of its easy and cheap availability.

Another perk of debt financing is that the interest on debt is tax deductible.

However, debt financing has its own share of drawbacks. In particular, debt financing is not desirable if it fails to generate a higher rate of return than the interest rate. So, one should always avoid resorting to exorbitant debt financing, which might even lead to a corporation's bankruptcy in the worst-case scenario.

Considering the current economic situation worldwide on account of the ongoing pandemic, most investors are skeptical about the stock market's performance, at least over the near term. Evidently, Wall Street's main indexes suffered a mild fall on Mar 17, as U.S. bond yields spiked ahead of the Federal Reserve's policy statement, which could provide hints on whether the central bank would raise interest rates sooner than expected.

So, to avoid huge losses, a prudent investor will 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 the safe investment procedure.  
Historically, 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 depicts that it has improved solvency.

With the fourth-quarter reporting cycle almost nearing its end, investors might be eyeing stocks that have exhibited solid earnings growth in recent quarters. 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.

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