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5 Low Leverage Stocks to Buy as Rate Cut Expectations Fade
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Though the majority of U.S. stock indices ended in green on Feb 23, they lost the momentum that led to the high achieved on Feb 22, backed by Nvidia’s better-than-expected quarterly results. Most likely, the indices slipped on account of the market consensus that the Federal Reserve will not cut interest rates until at least June.
In such a situation, an investor might not feel confident enough about investing in the stock market. However, a prudent investor knows that this is the right time to buy stocks that are safe bets. To this end, we recommend stocks like Costco Wholesale (COST - Free Report) , NiSource (NI - Free Report) , Expro Group Holdings (XPRO - Free Report) , Hawkins (HWKN - Free Report) and Kirby (KEX - 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 third-quarter earnings cycle progressing towards 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.
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 11 stocks that made it through the screen.
Costco Wholesale: It is one of the largest warehouse club operators in the United States, selling high volumes of foods and general merchandise (including household products and appliances) at discounted prices through membership warehouses. On Feb 7, 2024, the company revealed its January sales results. Costco reported net sales of $22.08 billion for the retail month of January, reflecting an increase of 4.5% from $21.13 billion last year.
COST boasts a long-term earnings growth rate of 9%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2024 sales suggests a 4.7% improvement year over year.
NiSource: The company, together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. On Feb 21, 2024, NiSource reported fourth-quarter 2023 operating earnings per share (EPS) of 53 cents, which increased 6% from the year-ago quarter’s recorded figure of 50 cents.
NI currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7.2%. The Zacks Consensus Estimate for 2024 sales suggests a 9.4% improvement year over year.
Expro Group: It is an oil and gas service company. On Feb 21, 2024, the company reported its fourth-quarter and full-year 2023 results. Its total revenues amounted to $406.8 million, up 10% from the year-ago quarter’s reported figure.
XPRO currently sports a Zacks Rank #1. The company has a four-quarter average earnings surprise of 51.32%. The Zacks Consensus Estimate for XPRO’s 2024 sales indicates an improvement of 11% from the 2023 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins: The company distributes, blends and manufactures bulk and specialty chemicals and other health and nutrition products for its customers in a wide variety of industries. On Jan 31, 2024, Hawkins released its third-quarter fiscal 2024 results. Its sales amounted to $208.5 million, down 4.9% year over year.
HWKN currently carries a Zacks Rank #2. The company has a four-quarter average earnings surprise of 30.56%. The Zacks Consensus Estimate for HWKN’s fiscal 2024 earnings indicates an improvement of 26.2% from the 2023 reported figure.
Kirby: It is the largest domestic tank barge operator in the United States. On Feb 1, 2024, the company announced its fourth-quarter and full-year 2023 results. Its total revenues were worth $799.2 million, up 9.5% year over year.
KEX currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 12%. The Zacks Consensus Estimate for KEX’s 2024 sales suggests a 4.5% improvement from the 2023 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 Rate Cut Expectations Fade
Though the majority of U.S. stock indices ended in green on Feb 23, they lost the momentum that led to the high achieved on Feb 22, backed by Nvidia’s better-than-expected quarterly results. Most likely, the indices slipped on account of the market consensus that the Federal Reserve will not cut interest rates until at least June.
In such a situation, an investor might not feel confident enough about investing in the stock market. However, a prudent investor knows that this is the right time to buy stocks that are safe bets. To this end, we recommend stocks like Costco Wholesale (COST - Free Report) , NiSource (NI - Free Report) , Expro Group Holdings (XPRO - Free Report) , Hawkins (HWKN - Free Report) and Kirby (KEX - 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 third-quarter earnings cycle progressing towards 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.
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 11 stocks that made it through the screen.
Costco Wholesale: It is one of the largest warehouse club operators in the United States, selling high volumes of foods and general merchandise (including household products and appliances) at discounted prices through membership warehouses. On Feb 7, 2024, the company revealed its January sales results. Costco reported net sales of $22.08 billion for the retail month of January, reflecting an increase of 4.5% from $21.13 billion last year.
COST boasts a long-term earnings growth rate of 9%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for fiscal 2024 sales suggests a 4.7% improvement year over year.
NiSource: The company, together with its subsidiaries, provides natural gas, electricity and other products and services in the United States. On Feb 21, 2024, NiSource reported fourth-quarter 2023 operating earnings per share (EPS) of 53 cents, which increased 6% from the year-ago quarter’s recorded figure of 50 cents.
NI currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7.2%. The Zacks Consensus Estimate for 2024 sales suggests a 9.4% improvement year over year.
Expro Group: It is an oil and gas service company. On Feb 21, 2024, the company reported its fourth-quarter and full-year 2023 results. Its total revenues amounted to $406.8 million, up 10% from the year-ago quarter’s reported figure.
XPRO currently sports a Zacks Rank #1. The company has a four-quarter average earnings surprise of 51.32%. The Zacks Consensus Estimate for XPRO’s 2024 sales indicates an improvement of 11% from the 2023 reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins: The company distributes, blends and manufactures bulk and specialty chemicals and other health and nutrition products for its customers in a wide variety of industries. On Jan 31, 2024, Hawkins released its third-quarter fiscal 2024 results. Its sales amounted to $208.5 million, down 4.9% year over year.
HWKN currently carries a Zacks Rank #2. The company has a four-quarter average earnings surprise of 30.56%. The Zacks Consensus Estimate for HWKN’s fiscal 2024 earnings indicates an improvement of 26.2% from the 2023 reported figure.
Kirby: It is the largest domestic tank barge operator in the United States. On Feb 1, 2024, the company announced its fourth-quarter and full-year 2023 results. Its total revenues were worth $799.2 million, up 9.5% year over year.
KEX currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 12%. The Zacks Consensus Estimate for KEX’s 2024 sales suggests a 4.5% improvement from the 2023 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.