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Bet on These 5 Low-Leverage Stocks Post-SVB Collapse
A near-term boost is expected in U.S. stocks, with regulators revealing a strategy to backstop all depositors in failed Silicon Valley Bank (SVB) and offer additional funding for other banks. Consequently, U.S. stock futures jumped on Mar 13 morning before markets opened.
Although this is encouraging news post the SVB's collapse last week, upcoming inflation data might continue to keep investors on the edge of uncertainty.
At times like these people tend to go for stocks that have a high growth score and have already excelled in the prior quarters. However, a prudent investor is aware of the fact that in such times when a question has been raised about banks' profitability, one should go for stocks that don't owe much to their lenders. In other words, one should invest in stocks likeAxos Financial, Alaska Air Group, RenaissanceRe, Skyline and MDU Resources, 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 almost in its last lap, 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.
Excluding stocks with a negative or a zero debt-to-equity ratio, here we present five out of 19 picks that made it through screening.
Axos Financial: It is the holding company for BofI Federal Bank, which provides financing for single and multifamily residential properties, small-to-medium size businesses in target sectors and selected specialty finance receivables. On Mar 12, 2023, the company provided a mid-quarter business update for its fiscal third quarter ending Mar 31, 2023. Per this update, AX's commercial and consumer average deposits have grown by 12% year over year to $13.7 billion.
AX delivered an earnings surprise of 8.12%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2023 earnings implies a 15.1% improvement from the fiscal 2022 reported figure.
Alaska Air Group: This airline company, together with its partner regional carriers, serves more than 120 cities across North America. In January 2023, Alaska Air announced its fourth-quarter 2022 results. The company reported operating revenues of $2,479 million in the fourth quarter, up 31% year over year.
ALK currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2023 earnings suggests a 32.6% improvement from the 2022 reported figure. It delivered an earnings surprise of 8.98%, on average, in the trailing four quarters.
RenaissanceRe: It primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess loss. On Feb 8, 2023, the company announced that its board of directors increased its quarterly dividend to 38 cents per share from 37 cents per share.
RNR currently sports a Zacks Rank #1. It delivered an earnings surprise of 11.40% in the last reported quarter. The Zacks Consensus Estimate for 2023 earnings indicates a 220.3% improvement from the 2022 reported figure. You can seethe complete list of today's Zacks #1 Rank stocks here.
Skyline: It designs, produces and distributes manufactured housing and recreational vehicles. On Feb 6, 2023, Skyline announced its third-quarter fiscal 2023 results. Its net sales for third-quarter fiscal 2023 increased 8.9% from the prior-year period to $582.3 million.
SKY currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 43.18%, on average. The Zacks Consensus Estimate for fiscal 2023 earnings suggests a 61.2% improvement from the 2022 reported figure.
MDU Resources: It is a utility natural gas distribution company, which provides value-added natural resource products and related services that are essential for energy transportation, regulated energy delivery and construction materials and services business. On Feb 9, 2023, MDU Resources reported its fourth-quarter and full-year 2022 results. Impressively, at the end of 2022, the company had an all-time high combined backlog at its construction businesses of more than $3 billion. Such a solid backlog is indicative of solid revenue growth for MDU in the near future.
MDU currently carries a Zacks Rank #2. It delivered an earnings surprise of 19.61% in the last reported quarter. The Zacks Consensus Estimate for 2023 earnings suggests a 13.9% improvement from the 2022 reported figure.
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.
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/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
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Zacks.com featured highlights include Axos Financial, Alaska Air Group, RenaissanceRe, Skyline and MDU Resources
For Immediate Release
Chicago, IL – March 14, 2023 – Stocks in this week’s article are Axos Financial (AX - Free Report) , Alaska Air Group (ALK - Free Report) , RenaissanceRe (RNR - Free Report) , Skyline (SKY - Free Report) and MDU Resources (MDU - Free Report) .
Bet on These 5 Low-Leverage Stocks Post-SVB Collapse
A near-term boost is expected in U.S. stocks, with regulators revealing a strategy to backstop all depositors in failed Silicon Valley Bank (SVB) and offer additional funding for other banks. Consequently, U.S. stock futures jumped on Mar 13 morning before markets opened.
Although this is encouraging news post the SVB's collapse last week, upcoming inflation data might continue to keep investors on the edge of uncertainty.
At times like these people tend to go for stocks that have a high growth score and have already excelled in the prior quarters. However, a prudent investor is aware of the fact that in such times when a question has been raised about banks' profitability, one should go for stocks that don't owe much to their lenders. In other words, one should invest in stocks likeAxos Financial, Alaska Air Group, RenaissanceRe, Skyline and MDU Resources, 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 almost in its last lap, 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.
Excluding stocks with a negative or a zero debt-to-equity ratio, here we present five out of 19 picks that made it through screening.
Axos Financial: It is the holding company for BofI Federal Bank, which provides financing for single and multifamily residential properties, small-to-medium size businesses in target sectors and selected specialty finance receivables. On Mar 12, 2023, the company provided a mid-quarter business update for its fiscal third quarter ending Mar 31, 2023. Per this update, AX's commercial and consumer average deposits have grown by 12% year over year to $13.7 billion.
AX delivered an earnings surprise of 8.12%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2023 earnings implies a 15.1% improvement from the fiscal 2022 reported figure.
Alaska Air Group: This airline company, together with its partner regional carriers, serves more than 120 cities across North America. In January 2023, Alaska Air announced its fourth-quarter 2022 results. The company reported operating revenues of $2,479 million in the fourth quarter, up 31% year over year.
ALK currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2023 earnings suggests a 32.6% improvement from the 2022 reported figure. It delivered an earnings surprise of 8.98%, on average, in the trailing four quarters.
RenaissanceRe: It primarily provides property-catastrophe reinsurance to insurers and reinsurers globally on the basis of excess loss. On Feb 8, 2023, the company announced that its board of directors increased its quarterly dividend to 38 cents per share from 37 cents per share.
RNR currently sports a Zacks Rank #1. It delivered an earnings surprise of 11.40% in the last reported quarter. The Zacks Consensus Estimate for 2023 earnings indicates a 220.3% improvement from the 2022 reported figure. You can seethe complete list of today's Zacks #1 Rank stocks here.
Skyline: It designs, produces and distributes manufactured housing and recreational vehicles. On Feb 6, 2023, Skyline announced its third-quarter fiscal 2023 results. Its net sales for third-quarter fiscal 2023 increased 8.9% from the prior-year period to $582.3 million.
SKY currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 43.18%, on average. The Zacks Consensus Estimate for fiscal 2023 earnings suggests a 61.2% improvement from the 2022 reported figure.
MDU Resources: It is a utility natural gas distribution company, which provides value-added natural resource products and related services that are essential for energy transportation, regulated energy delivery and construction materials and services business. On Feb 9, 2023, MDU Resources reported its fourth-quarter and full-year 2022 results. Impressively, at the end of 2022, the company had an all-time high combined backlog at its construction businesses of more than $3 billion. Such a solid backlog is indicative of solid revenue growth for MDU in the near future.
MDU currently carries a Zacks Rank #2. It delivered an earnings surprise of 19.61% in the last reported quarter. The Zacks Consensus Estimate for 2023 earnings suggests a 13.9% improvement from the 2022 reported figure.
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.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2064813/bet-on-these-5-low-leverage-stocks-post-svb-collapse
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 >>.
Follow us on Twitter: https://www.twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch
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.
Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://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/performancefor information about the performance numbers displayed in this press release.