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Buy These 5 Low-Leverage Stocks to Secure Your Investments
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If you want to invest in stocks but also want to avert unnecessary risk, then choose low leverage stocks like ICICI Bank (IBN - Free Report) , EchoStar (SATS - Free Report) , Old Republic International (ORI - Free Report) , DAQO New Energy (DQ - Free Report) and Teradyne (TER - Free Report) .
Leverage is a well-known strategy in corporate finance, which refers to the use of borrowed capital by companies in their business operations. This borrowing can be done either through equity or debt financing.
Now, a comparative analysis reflects that debt financing has been historically preferred over equity because of its easy and cheap availability.
Another perk of debt financing is that the interest on debt is tax-deductible.
Debt financing is not always desirable. In particular, debt financing becomes a threat if it fails to generate a higher rate of return than the interest rate. So, while choosing equities, a prudent investor should pay attention to the debt level that a company bears.
In particular, if you are a risk-averse investor, then go for stocks that bear low leverage since a debt-free corporation is rare to find.
In order to assert what amount of leverage a company bears, we need a metric. The debt-to-equity ratio is one metric that has been used frequently to measure the leverage of a company.
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 third-quarter earnings season behind us, investors must be eyeing stocks that have exhibited solid earnings growth in the recent past. 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 the 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 we present our five picks out of the 26 stocks that made it through the screen.
ICICI Bank: It offers a wide range of banking products and financial services to corporate and retail customers. Other sectors in which ICICI Bank has been expanding its presence include lending to the underserved rural market, and to small and medium-sized enterprises (SMEs), which recorded a year-over-year rise of 32.5% at the end of fiscal 2021 and 42% in the first half of fiscal 2022.
ICICI Bank delivered an earnings surprise of 3.90%, on average, in the trailing four quarters and carries a Zacks Rank #2 currently. Its long-term earnings growth rate is pegged at 28.2%.
EchoStar: It is a global provider of satellite service operations, video delivery services, broadband satellite technologies and broadband internet services for home and small office customers. EchoStar is a pioneer in secure communications technologies through its Hughes Network Systems and EchoStar Satellite Services business segments.
EchoStar currently carries a Zacks Rank #2. The company delivered an earnings surprise of 90.00% in the trailing four quarters, on average. Its 2021 earnings estimate indicates an improvement of 632.5% from 2020’s reported earnings.
Old Republic International: It is an insurance holding company whose subsidiaries actively market, underwrite, and provide risk management services for a wide variety of coverages mostly in general and title insurance fields. Old Republic International is one of the nation's 50 largest shareholder-owned insurance businesses. This year marks the 80th year of uninterrupted regular cash dividend payments.
Old Republic International came up with a four-quarter earnings surprise of 54.63%, on average, and carries a Zacks Rank of 2. Its 2021 earnings estimate implies an improvement of 29.5% from 2020’s reported earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.
DAQO New Energy: It is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers. The polysilicon is further processed into ingots, wafers, cells and modules for solar power solutions. DAQO’s highly-efficient and technically advanced manufacturing facility in Xinjiang, China currently has a nameplate annual polysilicon production capacity of 70,000 metric tons.
Currently, DAQO sports a Zacks Rank of 1. It delivered a four-quarter earnings surprise of 4.86%, on average. Its 2021 earnings estimate suggests an improvement of 615.7% from 2020’s reported earnings.
Teradyne: It is a leading provider of automated test equipment, with a particular focus on the semiconductor test market. Teradyne’s third-quarter 2021 adjusted earnings of $1.59 grew 35% year over year.
Teradyne currently carries a Zacks Rank #2 and delivered a four-quarter earnings surprise of 9.32%, on average. Its long-term earnings growth rate estimate is pegged at 19.9%.
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.
Image: Bigstock
Buy These 5 Low-Leverage Stocks to Secure Your Investments
If you want to invest in stocks but also want to avert unnecessary risk, then choose low leverage stocks like ICICI Bank (IBN - Free Report) , EchoStar (SATS - Free Report) , Old Republic International (ORI - Free Report) , DAQO New Energy (DQ - Free Report) and Teradyne (TER - Free Report) .
Leverage is a well-known strategy in corporate finance, which refers to the use of borrowed capital by companies in their business operations. This borrowing can be done either through equity or debt financing.
Now, a comparative analysis reflects that debt financing has been historically preferred over equity because of its easy and cheap availability.
Another perk of debt financing is that the interest on debt is tax-deductible.
Debt financing is not always desirable. In particular, debt financing becomes a threat if it fails to generate a higher rate of return than the interest rate. So, while choosing equities, a prudent investor should pay attention to the debt level that a company bears.
In particular, if you are a risk-averse investor, then go for stocks that bear low leverage since a debt-free corporation is rare to find.
In order to assert what amount of leverage a company bears, we need a metric. The debt-to-equity ratio is one metric that has been used frequently to measure the leverage of a company.
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 third-quarter earnings season behind us, investors must be eyeing stocks that have exhibited solid earnings growth in the recent past. 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 the 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 we present our five picks out of the 26 stocks that made it through the screen.
ICICI Bank: It offers a wide range of banking products and financial services to corporate and retail customers. Other sectors in which ICICI Bank has been expanding its presence include lending to the underserved rural market, and to small and medium-sized enterprises (SMEs), which recorded a year-over-year rise of 32.5% at the end of fiscal 2021 and 42% in the first half of fiscal 2022.
ICICI Bank delivered an earnings surprise of 3.90%, on average, in the trailing four quarters and carries a Zacks Rank #2 currently. Its long-term earnings growth rate is pegged at 28.2%.
EchoStar: It is a global provider of satellite service operations, video delivery services, broadband satellite technologies and broadband internet services for home and small office customers. EchoStar is a pioneer in secure communications technologies through its Hughes Network Systems and EchoStar Satellite Services business segments.
EchoStar currently carries a Zacks Rank #2. The company delivered an earnings surprise of 90.00% in the trailing four quarters, on average. Its 2021 earnings estimate indicates an improvement of 632.5% from 2020’s reported earnings.
Old Republic International: It is an insurance holding company whose subsidiaries actively market, underwrite, and provide risk management services for a wide variety of coverages mostly in general and title insurance fields. Old Republic International is one of the nation's 50 largest shareholder-owned insurance businesses. This year marks the 80th year of uninterrupted regular cash dividend payments.
Old Republic International came up with a four-quarter earnings surprise of 54.63%, on average, and carries a Zacks Rank of 2. Its 2021 earnings estimate implies an improvement of 29.5% from 2020’s reported earnings. You can see the complete list of today’s Zacks #1 Rank stocks here.
DAQO New Energy: It is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers. The polysilicon is further processed into ingots, wafers, cells and modules for solar power solutions. DAQO’s highly-efficient and technically advanced manufacturing facility in Xinjiang, China currently has a nameplate annual polysilicon production capacity of 70,000 metric tons.
Currently, DAQO sports a Zacks Rank of 1. It delivered a four-quarter earnings surprise of 4.86%, on average. Its 2021 earnings estimate suggests an improvement of 615.7% from 2020’s reported earnings.
Teradyne: It is a leading provider of automated test equipment, with a particular focus on the semiconductor test market. Teradyne’s third-quarter 2021 adjusted earnings of $1.59 grew 35% year over year.
Teradyne currently carries a Zacks Rank #2 and delivered a four-quarter earnings surprise of 9.32%, on average. Its long-term earnings growth rate estimate is pegged at 19.9%.
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.