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5 Low Leverage Stocks to Buy Amid Tensions in the Middle East
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The majority of U.S. stocks closed lower on Apr 15, reflecting investors’ skepticism about the fresh hostilities between Iran and Israel. Also, a jump in the Treasury yield, with the benchmark 10-year U.S. Treasury note hitting its highest level since November, added to investors’ woes. This, in turn, was reflected in the broader market slide despite better-than-expected U.S. retail sales data for March.
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 Freshpet (FRPT - Free Report) , AptarGroup (ATR - Free Report) , Montrose Environmental Group (MEG - Free Report) , The Greenbrier Companies (GBX - Free Report) and PDD Holdings (PDD - 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 start of the first-quarter earnings season, 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 14 stocks that made it through the screen.
Freshpet: The company manufactures and markets natural fresh foods, refrigerated meals and treats for dogs and cats in the United States and Canada. On Apr 11, 2024, Freshpet announced a long-term partnership with global superstar Meghan Trainor. Per the agreement, Trainor will appear in a wide-reaching online and social media campaign along with a personal appearance. This partnership is expected to aid the marketing of Freshpet products and thereby help it reach more customers.
FRPT boasts a four-quarter average earnings surprise of 61.83%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for FRPT’s 2024 sales suggests a 24.3% 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 Apr 11, 2024, AptarGroup announced that, along with Aptar Pharma, it will demonstrate and discuss their broad portfolio of respiratory drug delivery solutions and services at the Respiratory Drug Delivery conference to be held from May 5-9. The company will also showcase the Unidose and Bidose nasal drug delivery systems, along with the expanding portfolio of connected devices to deliver digital medicines for respiratory treatments.
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 4% improvement from the year-ago reported quarter.
Montrose Environmental Group: It provides environmental services principally in the United States. On Apr 2, 2024, MEG announced its acquisition of Engineering & Technical Associates, Inc. ("ETA"), a leader in Process Safety Management. ETA will join Montrose’s Assessment, Permitting & Response segment. Montrose Environmental also announced an increase to its 2024 Revenue and Consolidated Adjusted EBITDA outlook, backed by continued strong organic performance.
MEG currently carries a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 16%. The Zacks Consensus Estimate for MEG’s 2024 sales implies an increase of 13.8% over 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Greenbrier Companies: The company is a comprehensive provider of a broad range of social and medical services in the home. On Apr 5, 2024, Greenbrier reported financial results for its second quarter of fiscal 2024. Its lease fleet grew by 500 units to 14,600 units in the fiscal second quarter. GBX also obtained new railcar orders for 5,900 units valued at nearly $690 million.
GBX currently sports a Zacks Rank #1. The company has a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for GBX’s fiscal 2024 earnings has improved 8.1% over the past 60 days.
PDD Holdings: It provides an e-commerce platform allowing users to participate in group buying deals, primarily through Tencent's WeChat app. On Mar 20, 2024, PDD Holdings announced its financial results for the fourth quarter of 2023. Its total revenues improved a solid 123% from the fourth quarter of 2022 while operating profit increased 146%.
PDD currently sports a Zacks Rank #1. The company boasts a long-term earnings growth rate of 49.3%. The Zacks Consensus Estimate for PDD’s 2024 sales suggests a 50% 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 Amid Tensions in the Middle East
The majority of U.S. stocks closed lower on Apr 15, reflecting investors’ skepticism about the fresh hostilities between Iran and Israel. Also, a jump in the Treasury yield, with the benchmark 10-year U.S. Treasury note hitting its highest level since November, added to investors’ woes. This, in turn, was reflected in the broader market slide despite better-than-expected U.S. retail sales data for March.
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 Freshpet (FRPT - Free Report) , AptarGroup (ATR - Free Report) , Montrose Environmental Group (MEG - Free Report) , The Greenbrier Companies (GBX - Free Report) and PDD Holdings (PDD - 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 start of the first-quarter earnings season, 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 14 stocks that made it through the screen.
Freshpet: The company manufactures and markets natural fresh foods, refrigerated meals and treats for dogs and cats in the United States and Canada. On Apr 11, 2024, Freshpet announced a long-term partnership with global superstar Meghan Trainor. Per the agreement, Trainor will appear in a wide-reaching online and social media campaign along with a personal appearance. This partnership is expected to aid the marketing of Freshpet products and thereby help it reach more customers.
FRPT boasts a four-quarter average earnings surprise of 61.83%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for FRPT’s 2024 sales suggests a 24.3% 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 Apr 11, 2024, AptarGroup announced that, along with Aptar Pharma, it will demonstrate and discuss their broad portfolio of respiratory drug delivery solutions and services at the Respiratory Drug Delivery conference to be held from May 5-9. The company will also showcase the Unidose and Bidose nasal drug delivery systems, along with the expanding portfolio of connected devices to deliver digital medicines for respiratory treatments.
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 4% improvement from the year-ago reported quarter.
Montrose Environmental Group: It provides environmental services principally in the United States. On Apr 2, 2024, MEG announced its acquisition of Engineering & Technical Associates, Inc. ("ETA"), a leader in Process Safety Management. ETA will join Montrose’s Assessment, Permitting & Response segment. Montrose Environmental also announced an increase to its 2024 Revenue and Consolidated Adjusted EBITDA outlook, backed by continued strong organic performance.
MEG currently carries a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 16%. The Zacks Consensus Estimate for MEG’s 2024 sales implies an increase of 13.8% over 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Greenbrier Companies: The company is a comprehensive provider of a broad range of social and medical services in the home. On Apr 5, 2024, Greenbrier reported financial results for its second quarter of fiscal 2024. Its lease fleet grew by 500 units to 14,600 units in the fiscal second quarter. GBX also obtained new railcar orders for 5,900 units valued at nearly $690 million.
GBX currently sports a Zacks Rank #1. The company has a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for GBX’s fiscal 2024 earnings has improved 8.1% over the past 60 days.
PDD Holdings: It provides an e-commerce platform allowing users to participate in group buying deals, primarily through Tencent's WeChat app. On Mar 20, 2024, PDD Holdings announced its financial results for the fourth quarter of 2023. Its total revenues improved a solid 123% from the fourth quarter of 2022 while operating profit increased 146%.
PDD currently sports a Zacks Rank #1. The company boasts a long-term earnings growth rate of 49.3%. The Zacks Consensus Estimate for PDD’s 2024 sales suggests a 50% 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.