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Bet on These 5 Low Leverage Stocks Amid Easing Inflation
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U.S. stocks are anticipated to gain once the market opens on Jan 16, with a slowdown expected in the nation’s inflation trend. As stated recently by CNBC, the University of Michigan consumer sentiment survey on Jan 13 showed that the one-year inflation outlook was down to 4%, which reflects the lowest level since April 2021.
This might excite an investor to bet on stocks that are already showing signs of growth. However, a prudent investor knows that only a growth exhibiting character is not sufficient while choosing a stock. If one wants to avoid huge losses in times of crisis, one needs to look for relatively safe bets. To this end, we recommend stocks like Oxford Industries (OXM - Free Report) , Ingredion (INGR - Free Report) , Novo Nordisk (NVO - Free Report) , Helmerich & Payne (HP - Free Report) and Fox Factory Holdings (FOXF - Free Report) , which bear low leverage and therefore can shield investors from incurring losses in times of crisis.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
In finance, leverage is a term used to denote the practice of borrowing capital by companies to run their operations smoothly and expand the same. Such borrowings are done through debt financing. But there remains an option for equity finance. This is probably due to the cheap and easy availability of debt over equity financing.
However, debt financing has its share of drawbacks. Particularly, it is desirable only as long as it successfully generates a higher rate of return compared to the interest rate. So, to avoid considerable losses in your portfolio, one should always avoid companies that resort to exorbitant debt financing.
Therefore, the crux of safe investment lies in choosing a company that is not burdened with debt, as a debt-free stock is almost impossible to find.
Such an event shows how volatile the equity market can be at times and as an investor if you don’t want to lose big time, we suggest you invest in stocks, which bear low leverage and are hence less risky.
To identify such stocks, 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 lower debt-to-equity ratio reflects improved solvency for a company.
With the fourth-quarter earnings cycle knocking at the doors, 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 downturn, 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.
Yet, 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 or 2 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 that made it through the screen.
Oxford Industries: It is an apparel company, which designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. On Dec 7, 2022, the company announced its third-quarter fiscal 2022 results. Its consolidated net sales increased 26% year over year to $313 million in the last reported quarter.
OXM delivered an earnings surprise of 18.94%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2023 earnings implies a 34.4% improvement from the fiscal 2022 reported figure.
Ingredion: It is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients, which serve diverse sectors in food, beverage, brewing, pharmaceuticals and other industries. In December 2022, Ingredion announced that its 2030 emissions reduction targets have been approved by the Science Based Targets initiative (SBTi) and are consistent with levels required to meet the goals set by the Paris Agreement.
INGR currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2022 earnings suggests a 5.9% improvement year over year.
Novo Nordisk: It is a global healthcare company and a leader in the worldwide diabetes market. The company is also a key player in hemophilia care, growth hormone therapy, hormone replacement therapy and obesity. Recently, the company revealed that the U.S. Food and Drug Administration (FDA) approved a label update for Rybelsus (semaglutide) tablets, the first and only GLP-1 analog in pill form. It is indicated, along with diet and exercise, to improve glycemic control for adults with type 2 diabetes.
NVO carries a Zacks Rank #2 and delivered an earnings surprise of 3.09%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2022 earnings indicates a 2.4% improvement from the 2021 figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helmerich & Payne: It is engaged in the contract drilling of oil and gas wells in the United States and internationally. In November 2022, the company announced its fourth-quarter fiscal 2023 results. It reported revenues of $631.3 million, reflecting a surge of 83.6% from the year-ago quarter’s reported figure.
HP currently sports a Zacks Rank #1. It delivered a four-quarter earnings surprise of 124.22%, on average. The Zacks Consensus Estimate for 2022 sales suggests a 45.6% improvement from the 2021 reported figure.
Fox Factory: It is a designer, manufacturer and marketer of suspension products used primarily on mountain bikes, side-by-side vehicles, on-road vehicles, off-road vehicles, all-terrain vehicles, snowmobiles, specialty vehicles and applications and motorcycles. In November 2022, the company announced its third-quarter fiscal 2022 results, wherein its gross profit increased 18.3% year over year to $137.3 million,
FOXF currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 9.09%, on average. The Zacks Consensus Estimate for 2022 earnings suggests a 17.1% improvement from the 2021 reported figure.
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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Bet on These 5 Low Leverage Stocks Amid Easing Inflation
U.S. stocks are anticipated to gain once the market opens on Jan 16, with a slowdown expected in the nation’s inflation trend. As stated recently by CNBC, the University of Michigan consumer sentiment survey on Jan 13 showed that the one-year inflation outlook was down to 4%, which reflects the lowest level since April 2021.
This might excite an investor to bet on stocks that are already showing signs of growth. However, a prudent investor knows that only a growth exhibiting character is not sufficient while choosing a stock. If one wants to avoid huge losses in times of crisis, one needs to look for relatively safe bets. To this end, we recommend stocks like Oxford Industries (OXM - Free Report) , Ingredion (INGR - Free Report) , Novo Nordisk (NVO - Free Report) , Helmerich & Payne (HP - Free Report) and Fox Factory Holdings (FOXF - Free Report) , which bear low leverage and therefore can shield investors from incurring losses in times of crisis.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
In finance, leverage is a term used to denote the practice of borrowing capital by companies to run their operations smoothly and expand the same. Such borrowings are done through debt financing. But there remains an option for equity finance. This is probably due to the cheap and easy availability of debt over equity financing.
However, debt financing has its share of drawbacks. Particularly, it is desirable only as long as it successfully generates a higher rate of return compared to the interest rate. So, to avoid considerable losses in your portfolio, one should always avoid companies that resort to exorbitant debt financing.
Therefore, the crux of safe investment lies in choosing a company that is not burdened with debt, as a debt-free stock is almost impossible to find.
Such an event shows how volatile the equity market can be at times and as an investor if you don’t want to lose big time, we suggest you invest in stocks, which bear low leverage and are hence less risky.
To identify such stocks, 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 lower debt-to-equity ratio reflects improved solvency for a company.
With the fourth-quarter earnings cycle knocking at the doors, 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 downturn, 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.
Yet, 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 or 2 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 that made it through the screen.
Oxford Industries: It is an apparel company, which designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. On Dec 7, 2022, the company announced its third-quarter fiscal 2022 results. Its consolidated net sales increased 26% year over year to $313 million in the last reported quarter.
OXM delivered an earnings surprise of 18.94%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2023 earnings implies a 34.4% improvement from the fiscal 2022 reported figure.
Ingredion: It is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients, which serve diverse sectors in food, beverage, brewing, pharmaceuticals and other industries. In December 2022, Ingredion announced that its 2030 emissions reduction targets have been approved by the Science Based Targets initiative (SBTi) and are consistent with levels required to meet the goals set by the Paris Agreement.
INGR currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2022 earnings suggests a 5.9% improvement year over year.
Novo Nordisk: It is a global healthcare company and a leader in the worldwide diabetes market. The company is also a key player in hemophilia care, growth hormone therapy, hormone replacement therapy and obesity. Recently, the company revealed that the U.S. Food and Drug Administration (FDA) approved a label update for Rybelsus (semaglutide) tablets, the first and only GLP-1 analog in pill form. It is indicated, along with diet and exercise, to improve glycemic control for adults with type 2 diabetes.
NVO carries a Zacks Rank #2 and delivered an earnings surprise of 3.09%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2022 earnings indicates a 2.4% improvement from the 2021 figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helmerich & Payne: It is engaged in the contract drilling of oil and gas wells in the United States and internationally. In November 2022, the company announced its fourth-quarter fiscal 2023 results. It reported revenues of $631.3 million, reflecting a surge of 83.6% from the year-ago quarter’s reported figure.
HP currently sports a Zacks Rank #1. It delivered a four-quarter earnings surprise of 124.22%, on average. The Zacks Consensus Estimate for 2022 sales suggests a 45.6% improvement from the 2021 reported figure.
Fox Factory: It is a designer, manufacturer and marketer of suspension products used primarily on mountain bikes, side-by-side vehicles, on-road vehicles, off-road vehicles, all-terrain vehicles, snowmobiles, specialty vehicles and applications and motorcycles. In November 2022, the company announced its third-quarter fiscal 2022 results, wherein its gross profit increased 18.3% year over year to $137.3 million,
FOXF currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 9.09%, on average. The Zacks Consensus Estimate for 2022 earnings suggests a 17.1% improvement from the 2021 reported figure.
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.