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Choose These 5 Low Leverage Stocks to Keep Your Portfolio Safe
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The Wall Street has been witnessing fluctuations over the past few days, with investors concerned about inflation and supply chain problems that cast a shadow over the optimism around the slowly recovering economy. Indeed, ever since the COVID-19 pandemic hit last year, the share market has not seen a stable growth trajectory for a considerable period.
This makes it necessary for investors to choose safe-bet stocks and avoid those which are highly debt ridden, since debt free stocks are nearly impossible to find.
This is where the concept of leverage comes, Leverage can be referred to as debt that majority of companies undertake for smooth operations and expansion. However, since exorbitant debt financing might cause a corporation’s bankruptcy, investors should pay attention to the debt level that a company bears.
So, to protect one’s portfolio from suffering huge losses, investors mostly choose stocks that bear low leverage and this selection can be done easily by using different ratios to measure the debt a company bears. One such ratio is debt-to-equity ratio.
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.
Most of the times investors go for stocks that have exhibited solid earnings growth in the 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.
The Winning Strategy
Considering the aforementioned factors, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.
However, an investment strategy based solely on debt-to-equity ratio might not fetch the desired outcome. To choose stocks that have the potential to give you steady returns, we have expanded our screening criteria to include some other factors.
Here are the other parameters:
Debt/Equity less than X-Industry Median: Stocks that are less leveraged than their industry peers.
Current Price greater than or equal to 10: The stocks must be trading at a minimum of $10 or above.
Average 20-day Volume greater than or equal to 50000: A substantial trading volume ensures that the stock is easily tradable.
Percentage Change in EPS F(0)/F(-1) greater than X-Industry Median: Earnings growth adds to optimism, leading to a stock’s price appreciation.
VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.
Estimated One-Year EPS Growth F(1)/F(0) greater than 5: This shows earnings growth expectation
Zacks Rank #1 or 2: Irrespective of market conditions, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of success.
Excluding stocks that have a negative or a zero debt-to-equity ratio, here are five of the 29 stocks that made it through the screen.
MarineMax (HZO - Free Report) : It is the United States’ largest recreational boat and yacht retailer. The company delivered an earnings surprise of 125.82%, on average, in the trailing four quarters and sports a Zacks Rank #1 currently.
Titan Machinery (TITN - Free Report) : It owns and operates a network of over 70 full-service agriculture and construction equipment stores across nine states in the United States and six countries in Europe. The company currently sports a Zacks Rank #1 and delivered an earnings surprise of 350.20% in the trailing four quarters, on average.
Suburban Propane Partners, L.P. (SPH - Free Report) : It is engaged in the retail and wholesale marketing of propane and related appliances and services. The company came up with a four-quarter earnings surprise of 25.52%, on average, and has a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Danaher Corporation (DHR - Free Report) : It is a global conglomerate that designs, manufactures and markets diverse lines of professional, industrial, commercial and consumer products. Currently, the company carries a Zacks Rank of 2 and came up with a four-quarter earnings surprise of 31.34%, on average.
Toronto Dominion Bank (TD - Free Report) : It is a Canadian chartered bank and offers a wide range of business and consumer services. The company currently carries a Zacks Rank #2 and delivered a four-quarter earnings surprise of 21.60%, on average.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
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Choose These 5 Low Leverage Stocks to Keep Your Portfolio Safe
The Wall Street has been witnessing fluctuations over the past few days, with investors concerned about inflation and supply chain problems that cast a shadow over the optimism around the slowly recovering economy. Indeed, ever since the COVID-19 pandemic hit last year, the share market has not seen a stable growth trajectory for a considerable period.
This makes it necessary for investors to choose safe-bet stocks and avoid those which are highly debt ridden, since debt free stocks are nearly impossible to find.
This is where the concept of leverage comes, Leverage can be referred to as debt that majority of companies undertake for smooth operations and expansion. However, since exorbitant debt financing might cause a corporation’s bankruptcy, investors should pay attention to the debt level that a company bears.
So, to protect one’s portfolio from suffering huge losses, investors mostly choose stocks that bear low leverage and this selection can be done easily by using different ratios to measure the debt a company bears. One such ratio is debt-to-equity ratio.
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.
Most of the times investors go for stocks that have exhibited solid earnings growth in the 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.
The Winning Strategy
Considering the aforementioned factors, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.
However, an investment strategy based solely on debt-to-equity ratio might not fetch the desired outcome. To choose stocks that have the potential to give you steady returns, we have expanded our screening criteria to include some other factors.
Here are the other parameters:
Debt/Equity less than X-Industry Median: Stocks that are less leveraged than their industry peers.
Current Price greater than or equal to 10: The stocks must be trading at a minimum of $10 or above.
Average 20-day Volume greater than or equal to 50000: A substantial trading volume ensures that the stock is easily tradable.
Percentage Change in EPS F(0)/F(-1) greater than X-Industry Median: Earnings growth adds to optimism, leading to a stock’s price appreciation.
VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.
Estimated One-Year EPS Growth F(1)/F(0) greater than 5: This shows earnings growth expectation
Zacks Rank #1 or 2: Irrespective of market conditions, stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) have a proven history of success.
Excluding stocks that have a negative or a zero debt-to-equity ratio, here are five of the 29 stocks that made it through the screen.
MarineMax (HZO - Free Report) : It is the United States’ largest recreational boat and yacht retailer. The company delivered an earnings surprise of 125.82%, on average, in the trailing four quarters and sports a Zacks Rank #1 currently.
Titan Machinery (TITN - Free Report) : It owns and operates a network of over 70 full-service agriculture and construction equipment stores across nine states in the United States and six countries in Europe. The company currently sports a Zacks Rank #1 and delivered an earnings surprise of 350.20% in the trailing four quarters, on average.
Suburban Propane Partners, L.P. (SPH - Free Report) : It is engaged in the retail and wholesale marketing of propane and related appliances and services. The company came up with a four-quarter earnings surprise of 25.52%, on average, and has a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Danaher Corporation (DHR - Free Report) : It is a global conglomerate that designs, manufactures and markets diverse lines of professional, industrial, commercial and consumer products. Currently, the company carries a Zacks Rank of 2 and came up with a four-quarter earnings surprise of 31.34%, on average.
Toronto Dominion Bank (TD - Free Report) : It is a Canadian chartered bank and offers a wide range of business and consumer services. The company currently carries a Zacks Rank #2 and delivered a four-quarter earnings surprise of 21.60%, on average.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.