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5 Low-Leverage Stocks to Buy as U.S. Consumer Price Rises
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The majority of U.S. stock indices finished in the green on Sep 13, after August consumer price data reflected a moderate rise. This boosted investors’ expectations that the Federal Reserve might leave interest rates unchanged this month.
Against this backdrop, stock market players might be in the mood for some good investment. However, since the share market has lately been on the edge, we recommend stocks like Arcosa (ACA - Free Report) , PulteGroup (PHM - Free Report) , Kirby Corp. (KEX - Free Report) , Terex Corp. (TEX - Free Report) and Allete Inc. (ALE - Free Report) , which bear low leverage. Choosing them can shield investors from incurring huge 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.
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.
The equity market can be volatile 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 second-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 five picks out of the 22 stocks that made it through the screen.
Arcosa: The company is a provider of infrastructure-related products and solutions with leading brands serving construction, engineered structures and transportation markets. On Aug 3, 2023, Arcosa reported its second-quarter 2023 results. Its revenues dropped 3% from the year-ago quarter to $584.8 million, while its adjusted earnings per share fell 8%.
ACA delivered an earnings surprise of 47.51%, on average, in the trailing four quarters. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for ACA’s 2023 sales implies a 1.2% improvement from the 2022 reported figure.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 25, 2023, the company reported its second-quarter 2023 results. Its net new orders increased 24% from last year, while home sale revenues for the second quarter increased 8% from the prior year to $4.1 billion.
PHM currently sports a Zacks Rank #1. The company delivered an earnings surprise of 19.51% on average in the trailing four quarters. The Zacks Consensus Estimate for 2023 sales suggests a 1.6% improvement year over year.
Kirby: It is the largest domestic tank barge operator in the United States. On Aug 25, 2023, Kirby christened GREEN DIAMOND, the nation’s first plug-in hybrid electric inland towing vessel, at a ceremony in Houston, TX. The vessel has been constructed by San Jac Marine, LLC, Kirby’s shipyard in Channelview, TX. Stewart & Stevenson Manufacturing Technologies, another Kirby company, designed and installed the power management, control and propulsion systems. A host of vendors provided other key systems for this first-of-its-kind vessel.
KEX currently carries a Zacks Rank #2. The company delivered an earnings surprise of 8.03% on average in the trailing four quarters. The Zacks Consensus Estimate for KEX’s 2023 sales indicates an 11.2% improvement from the 2022 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Terex: It is a global manufacturer of aerial work platforms, materials processing machinery and cranes. On Aug 1, 2023, Terex reported its second-quarter 2023 results. Its sales improved 30% year over year to $1.4 billion, while earnings per share surged a solid 119.6%.
TEX currently sports a Zacks Rank #1. The company delivered an earnings surprise of 32.80% on average in the trailing four quarters. The Zacks Consensus Estimate for TEX’s 2023 sales suggests a 15.9% improvement from the fiscal 2022 reported figure.
Allete: It is an energy company, which invests in transmission infrastructure and other energy-centric businesses. On Aug 8, 2023, the company released its second-quarter 2023 results. Its earnings per share of 90 cents improved a solid 34.3% from the year-ago quarter’s reported figure.
ALE currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 8.1%. The Zacks Consensus Estimate for ALE’s 2023 sales suggests a 23.8% improvement from the 2022 reported figure.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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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5 Low-Leverage Stocks to Buy as U.S. Consumer Price Rises
The majority of U.S. stock indices finished in the green on Sep 13, after August consumer price data reflected a moderate rise. This boosted investors’ expectations that the Federal Reserve might leave interest rates unchanged this month.
Against this backdrop, stock market players might be in the mood for some good investment. However, since the share market has lately been on the edge, we recommend stocks like Arcosa (ACA - Free Report) , PulteGroup (PHM - Free Report) , Kirby Corp. (KEX - Free Report) , Terex Corp. (TEX - Free Report) and Allete Inc. (ALE - Free Report) , which bear low leverage. Choosing them can shield investors from incurring huge 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.
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.
The equity market can be volatile 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 second-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 five picks out of the 22 stocks that made it through the screen.
Arcosa: The company is a provider of infrastructure-related products and solutions with leading brands serving construction, engineered structures and transportation markets. On Aug 3, 2023, Arcosa reported its second-quarter 2023 results. Its revenues dropped 3% from the year-ago quarter to $584.8 million, while its adjusted earnings per share fell 8%.
ACA delivered an earnings surprise of 47.51%, on average, in the trailing four quarters. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for ACA’s 2023 sales implies a 1.2% improvement from the 2022 reported figure.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 25, 2023, the company reported its second-quarter 2023 results. Its net new orders increased 24% from last year, while home sale revenues for the second quarter increased 8% from the prior year to $4.1 billion.
PHM currently sports a Zacks Rank #1. The company delivered an earnings surprise of 19.51% on average in the trailing four quarters. The Zacks Consensus Estimate for 2023 sales suggests a 1.6% improvement year over year.
Kirby: It is the largest domestic tank barge operator in the United States. On Aug 25, 2023, Kirby christened GREEN DIAMOND, the nation’s first plug-in hybrid electric inland towing vessel, at a ceremony in Houston, TX. The vessel has been constructed by San Jac Marine, LLC, Kirby’s shipyard in Channelview, TX. Stewart & Stevenson Manufacturing Technologies, another Kirby company, designed and installed the power management, control and propulsion systems. A host of vendors provided other key systems for this first-of-its-kind vessel.
KEX currently carries a Zacks Rank #2. The company delivered an earnings surprise of 8.03% on average in the trailing four quarters. The Zacks Consensus Estimate for KEX’s 2023 sales indicates an 11.2% improvement from the 2022 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Terex: It is a global manufacturer of aerial work platforms, materials processing machinery and cranes. On Aug 1, 2023, Terex reported its second-quarter 2023 results. Its sales improved 30% year over year to $1.4 billion, while earnings per share surged a solid 119.6%.
TEX currently sports a Zacks Rank #1. The company delivered an earnings surprise of 32.80% on average in the trailing four quarters. The Zacks Consensus Estimate for TEX’s 2023 sales suggests a 15.9% improvement from the fiscal 2022 reported figure.
Allete: It is an energy company, which invests in transmission infrastructure and other energy-centric businesses. On Aug 8, 2023, the company released its second-quarter 2023 results. Its earnings per share of 90 cents improved a solid 34.3% from the year-ago quarter’s reported figure.
ALE currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 8.1%. The Zacks Consensus Estimate for ALE’s 2023 sales suggests a 23.8% improvement from the 2022 reported figure.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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.