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Buy These 4 Low-Leverage Stocks Amid Recent Market Optimism
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U.S. stocks soared on Jun 9, buoyed by growing optimism among investors over the economic outlook and anticipation that the Federal Reserve would not make another rate hike this time.
This must encourage investors to buy stocks now, with an improved market scenario projected in the near term. However, considering the fact that the overall market situation might return to a state of volatility at any point of time due to some sudden uncertainty arising in the global market space, a prudent investor should go for stocks that are safe bets. To this end, we recommend stocks like Atmos Energy (ATO - Free Report) , The TJX Companies (TJX - Free Report) , Linde PLC (LIN - Free Report) and MINISO Group Holding Limited (MNSO - Free Report) , which bear low leverage. These can therefore 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 first-quarter earnings cycle 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 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 four picks that made it through the screen.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 3, 2023, the company released its second-quarter fiscal 2023. Its earnings per share were $2.48, compared with $2.37 in the year-ago quarter.
ATO delivered an earnings surprise of 4.92%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2023 sales implies a 25.7% improvement from the fiscal 2022 reported figure.
TJX Companies: It is a leading off-price retailer of apparel and home fashions in the United States and worldwide. On May 17, 2023, the company announced its first-quarter fiscal 2024 results. Its net sales for the first quarter of fiscal 2024 were $11.8 billion, an increase of 3% from the first quarter of fiscal 2023.
TJX currently has a Zacks Rank #2. The company delivered an earnings surprise of 4.38% on average in the trailing four quarters. The Zacks Consensus Estimate for 2023 sales suggests a 6.4% improvement year over year.
Linde: It is a leading producer of industrial gases that are being utilized in various industries like chemicals & refining, food & beverage, electronics, healthcare, manufacturing and primary metals. On May 2, 2023, it was announced that Great Lakes Clean Hydrogen Hub coalition (GLCH), a partnership among Linde and a few other organizations, has submitted a full application for federal funding from the $8 billion U.S. Department of Energy (DOE) program to support the creation of regional clean hydrogen hubs. This should enhance Linde’s footprint in the hydrogen market.
LIN carries a Zacks Rank #2 and holds a long-term earnings growth rate of 10%. The Zacks Consensus Estimate for 2023 sales indicates a 2.6% improvement from the 2022 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
MINISO Group Holding: It is a retailer offering design-led lifestyle products. On May 16, 2023, the company announced its third-quarter fiscal 2023 results. Its revenues worth $430.2 million reflect an increase of 26.2% year over year. The number of MINISO stores increased by 401.
MNSO currently carries a Zacks Rank #2. It boasts a long-term earnings growth rate of 51.9%. The Zacks Consensus Estimate for MNSO’s fiscal 2023 sales suggests a 5.3% improvement from the 2022 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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Buy These 4 Low-Leverage Stocks Amid Recent Market Optimism
U.S. stocks soared on Jun 9, buoyed by growing optimism among investors over the economic outlook and anticipation that the Federal Reserve would not make another rate hike this time.
This must encourage investors to buy stocks now, with an improved market scenario projected in the near term. However, considering the fact that the overall market situation might return to a state of volatility at any point of time due to some sudden uncertainty arising in the global market space, a prudent investor should go for stocks that are safe bets. To this end, we recommend stocks like Atmos Energy (ATO - Free Report) , The TJX Companies (TJX - Free Report) , Linde PLC (LIN - Free Report) and MINISO Group Holding Limited (MNSO - Free Report) , which bear low leverage. These can therefore 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 first-quarter earnings cycle 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 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 four picks that made it through the screen.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 3, 2023, the company released its second-quarter fiscal 2023. Its earnings per share were $2.48, compared with $2.37 in the year-ago quarter.
ATO delivered an earnings surprise of 4.92%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2023 sales implies a 25.7% improvement from the fiscal 2022 reported figure.
TJX Companies: It is a leading off-price retailer of apparel and home fashions in the United States and worldwide. On May 17, 2023, the company announced its first-quarter fiscal 2024 results. Its net sales for the first quarter of fiscal 2024 were $11.8 billion, an increase of 3% from the first quarter of fiscal 2023.
TJX currently has a Zacks Rank #2. The company delivered an earnings surprise of 4.38% on average in the trailing four quarters. The Zacks Consensus Estimate for 2023 sales suggests a 6.4% improvement year over year.
Linde: It is a leading producer of industrial gases that are being utilized in various industries like chemicals & refining, food & beverage, electronics, healthcare, manufacturing and primary metals. On May 2, 2023, it was announced that Great Lakes Clean Hydrogen Hub coalition (GLCH), a partnership among Linde and a few other organizations, has submitted a full application for federal funding from the $8 billion U.S. Department of Energy (DOE) program to support the creation of regional clean hydrogen hubs. This should enhance Linde’s footprint in the hydrogen market.
LIN carries a Zacks Rank #2 and holds a long-term earnings growth rate of 10%. The Zacks Consensus Estimate for 2023 sales indicates a 2.6% improvement from the 2022 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
MINISO Group Holding: It is a retailer offering design-led lifestyle products. On May 16, 2023, the company announced its third-quarter fiscal 2023 results. Its revenues worth $430.2 million reflect an increase of 26.2% year over year. The number of MINISO stores increased by 401.
MNSO currently carries a Zacks Rank #2. It boasts a long-term earnings growth rate of 51.9%. The Zacks Consensus Estimate for MNSO’s fiscal 2023 sales suggests a 5.3% improvement from the 2022 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.