We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Low Leverage Stocks to Buy Buoyed by Optimistic Economic Data
Read MoreHide Full Article
Prominent U.S. equity market indices ended in green on Mar 27, reflecting investors’ optimism around the upcoming Personal Consumption Expenditures (PCE) price index data, which is due for release at the end of this week. A set of improved economic data releases in recent times, including a 1.4% rise in durable goods orders in February amid increases in transportation equipment and machinery orders, have kept the general market consensus in favor of stock investment.
Against this backdrop, stock market players might be in the mood for some good investments. We recommend stocks like Donaldson (DCI - Free Report) , AptarGroup (ATR - Free Report) , Lifeway Foods (LWAY - Free Report) , Hawkins (HWKN - Free Report) and Scorpio Tankers (STNG - 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 excessive 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 that 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. 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 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 factors above, 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 15 stocks that made it through the screen.
Donaldson: The company is engaged in the manufacturing and selling of filtration systems and replacement parts across the world. On Feb 28, 2024, the company released its second-quarter fiscal 2024 results. It reported earnings per share of 81 cents for the reported quarter, up 15.9% from the year-ago quarter figure.
DCI boasts a four-quarter average earnings surprise of 4.46%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for DCI’s 2024 sales suggests a 4.2% improvement from 2023’s reported figure.
AptarGroup: The company is a global supplier of a broad range of innovative dispensing, sealing, and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. On Mar 20, 2024, Aptar announced that it had received a supplier engagement rating of “A” from the CDP Supplier Engagement Leaderboard for the fourth consecutive year. This reflects ATR’s contribution toward emission reduction through its supply chain.
ATR currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for ATR’s 2024 sales suggests a 3.8% improvement from the year-ago reported quarter.
Lifeway Foods: It produces Kefir, a drinkable product similar to, but distinct from, yogurt, in several flavors sold under the name Lifeway's Kefir. On Mar 20, 2024, Lifeway Foods reported record-breaking fourth-quarter 2023 results. Its net sales improved 17.5% year over year to $42.1 million in the reported quarter, while earnings per share surged from 5 cents to 26 cents.
LWAY currently sports a Zacks Rank #1. The company boasts a four-quarter average earnings surprise of 73.14%. The Zacks Consensus Estimate for LWAY’s 2024 sales implies a 12.4% improvement 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 Mar 11, 2024, Hawkins revealed that it had completed the acquisition of Industrial Research Corporation, which distributes water treatment chemicals and equipment for customers in central to northern Louisiana, eastern Texas and southern Arkansas.
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.
Scorpio Tankers: It is a provider of marine transportation of petroleum products worldwide. On Mar 20, 2024, the company announced that it had signed an agreement to sell two 2013-built MR product tankers, STI Larvotto and STI Le Rocher, for $36.15 million per vessel. This agreement seems to be in line with the company’s optimization strategy to streamline its operations through asset sell-offs.
STNG currently carries a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 9.64%. The Zacks Consensus Estimate for STNG’s 2024 sales suggests a 3% 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 trading. Further, you can also create your 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.
Image: Bigstock
5 Low Leverage Stocks to Buy Buoyed by Optimistic Economic Data
Prominent U.S. equity market indices ended in green on Mar 27, reflecting investors’ optimism around the upcoming Personal Consumption Expenditures (PCE) price index data, which is due for release at the end of this week. A set of improved economic data releases in recent times, including a 1.4% rise in durable goods orders in February amid increases in transportation equipment and machinery orders, have kept the general market consensus in favor of stock investment.
Against this backdrop, stock market players might be in the mood for some good investments. We recommend stocks like Donaldson (DCI - Free Report) , AptarGroup (ATR - Free Report) , Lifeway Foods (LWAY - Free Report) , Hawkins (HWKN - Free Report) and Scorpio Tankers (STNG - 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 excessive 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 that 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. 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 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 factors above, 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 15 stocks that made it through the screen.
Donaldson: The company is engaged in the manufacturing and selling of filtration systems and replacement parts across the world. On Feb 28, 2024, the company released its second-quarter fiscal 2024 results. It reported earnings per share of 81 cents for the reported quarter, up 15.9% from the year-ago quarter figure.
DCI boasts a four-quarter average earnings surprise of 4.46%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for DCI’s 2024 sales suggests a 4.2% improvement from 2023’s reported figure.
AptarGroup: The company is a global supplier of a broad range of innovative dispensing, sealing, and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. On Mar 20, 2024, Aptar announced that it had received a supplier engagement rating of “A” from the CDP Supplier Engagement Leaderboard for the fourth consecutive year. This reflects ATR’s contribution toward emission reduction through its supply chain.
ATR currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for ATR’s 2024 sales suggests a 3.8% improvement from the year-ago reported quarter.
Lifeway Foods: It produces Kefir, a drinkable product similar to, but distinct from, yogurt, in several flavors sold under the name Lifeway's Kefir. On Mar 20, 2024, Lifeway Foods reported record-breaking fourth-quarter 2023 results. Its net sales improved 17.5% year over year to $42.1 million in the reported quarter, while earnings per share surged from 5 cents to 26 cents.
LWAY currently sports a Zacks Rank #1. The company boasts a four-quarter average earnings surprise of 73.14%. The Zacks Consensus Estimate for LWAY’s 2024 sales implies a 12.4% improvement 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 Mar 11, 2024, Hawkins revealed that it had completed the acquisition of Industrial Research Corporation, which distributes water treatment chemicals and equipment for customers in central to northern Louisiana, eastern Texas and southern Arkansas.
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.
Scorpio Tankers: It is a provider of marine transportation of petroleum products worldwide. On Mar 20, 2024, the company announced that it had signed an agreement to sell two 2013-built MR product tankers, STI Larvotto and STI Le Rocher, for $36.15 million per vessel. This agreement seems to be in line with the company’s optimization strategy to streamline its operations through asset sell-offs.
STNG currently carries a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 9.64%. The Zacks Consensus Estimate for STNG’s 2024 sales suggests a 3% 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 trading. Further, you can also create your 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.