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Buy These 5 Low-Leverage Stocks Amid Easing U.S.-China Trade Tension
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The major U.S. stock indices ended May 13 on a higher note, buoyed by easing trade tensions between the United States and China. Softer-than-expected inflation data released yesterday also helped boost investors’ optimism after the two nations agreed to a 90-day tariff pause earlier this week.
Such positive market sentiment might pave the way for investors to rush into trading on Wall Street. However, considering that the tariff pause is only for 90 days and the global market dynamics change daily, the U.S. equity market may not sustain its rebound for long. Therefore, to safeguard one’s portfolio from huge losses (in times of crisis), it is advisable to choose safe bet stocks like 1st Source (SRCE - Free Report) , Kingstone Companies (KINS - Free Report) , MasTec (MTZ - Free Report) , Dorman Products (DORM - Free Report) and Sterling Infrastructure, Inc. (STRL - Free Report) . These stocks bear low leverage and, therefore, should be a safer option for investors if they don’t want to lose big in times of market turmoil.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
What’s the Significance of Low-Leverage Stocks?
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 first-quarter 2025 earnings season almost in its final 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 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 eight stocks that made it through the screen.
1st Source: It is a bank holding company engaged in the general banking business. On April 24, 2025, the company released its first-quarter 2025 results. Its return on average assets increased to 1.72% during the first quarter from 1.37% in the previous year quarter. SRCE’s net income was a record $37.52 million for the first quarter, up 27.38% from the first quarter of 2024.
The Zacks Consensus Estimate for SRCE’s 2025 sales suggests an improvement of 7.9% from the 2024 reported figure. The company boasts a four-quarter average earnings surprise of 9.40%. It currently has a Zacks Rank #2.
Kingstone Companies: It is a property and casualty insurance holding company, which focuses on automobile, motorcycle and homeowners insurance. On May 8, 2025, the company announced its first-quarter 2025 results. Its net premium earned improved 51% year over year, while earnings per share surged a solid 125%.
The Zacks Consensus Estimate for its 2025 sales suggests a year-over-year improvement of 37.9%. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 31%. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
MasTec: It is a leading infrastructure construction company operating mainly throughout North America. On May 1, 2025, the company announced its first-quarter 2025 results. Its revenues increased 6% year over year, while adjusted EBITDA margin improved 6 basis points.
The Zacks Consensus Estimate for its 2025 sales indicates an improvement of 11.1% from the 2024 actual. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 54.9%. It currently carries a Zacks Rank #2.
Dorman Products: It is a leading supplier of Dealer Exclusive replacement parts to the Automotive, Medium and Heavy Duty Aftermarkets. On May 5, 2025, the company released its first-quarter 2025 results. Its net sales improved 8.3% year over year, while adjusted earnings per share surged 54%.
The Zacks Consensus Estimate for its 2025 sales indicates an improvement of 4.7% from the 2024 actual. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 9.7%. It currently has a Zacks Rank #2.
Sterling Infrastructure: It operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions, principally in the United States. On May 5, 2025, the company announced its first-quarter 2025 results. Its revenues increased 7% year over year, while adjusted earnings per share surged 29%.
STRL boasts a long-term earnings growth rate of 15%. The stock boasts an average earnings surprise of 11.54%. It currently carries a Zacks Rank #2.
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
Buy These 5 Low-Leverage Stocks Amid Easing U.S.-China Trade Tension
The major U.S. stock indices ended May 13 on a higher note, buoyed by easing trade tensions between the United States and China. Softer-than-expected inflation data released yesterday also helped boost investors’ optimism after the two nations agreed to a 90-day tariff pause earlier this week.
Such positive market sentiment might pave the way for investors to rush into trading on Wall Street. However, considering that the tariff pause is only for 90 days and the global market dynamics change daily, the U.S. equity market may not sustain its rebound for long. Therefore, to safeguard one’s portfolio from huge losses (in times of crisis), it is advisable to choose safe bet stocks like 1st Source (SRCE - Free Report) , Kingstone Companies (KINS - Free Report) , MasTec (MTZ - Free Report) , Dorman Products (DORM - Free Report) and Sterling Infrastructure, Inc. (STRL - Free Report) . These stocks bear low leverage and, therefore, should be a safer option for investors if they don’t want to lose big in times of market turmoil.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
What’s the Significance of Low-Leverage Stocks?
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 first-quarter 2025 earnings season almost in its final 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 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 eight stocks that made it through the screen.
1st Source: It is a bank holding company engaged in the general banking business. On April 24, 2025, the company released its first-quarter 2025 results. Its return on average assets increased to 1.72% during the first quarter from 1.37% in the previous year quarter. SRCE’s net income was a record $37.52 million for the first quarter, up 27.38% from the first quarter of 2024.
The Zacks Consensus Estimate for SRCE’s 2025 sales suggests an improvement of 7.9% from the 2024 reported figure. The company boasts a four-quarter average earnings surprise of 9.40%. It currently has a Zacks Rank #2.
Kingstone Companies: It is a property and casualty insurance holding company, which focuses on automobile, motorcycle and homeowners insurance. On May 8, 2025, the company announced its first-quarter 2025 results. Its net premium earned improved 51% year over year, while earnings per share surged a solid 125%.
The Zacks Consensus Estimate for its 2025 sales suggests a year-over-year improvement of 37.9%. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 31%. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
MasTec: It is a leading infrastructure construction company operating mainly throughout North America. On May 1, 2025, the company announced its first-quarter 2025 results. Its revenues increased 6% year over year, while adjusted EBITDA margin improved 6 basis points.
The Zacks Consensus Estimate for its 2025 sales indicates an improvement of 11.1% from the 2024 actual. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 54.9%. It currently carries a Zacks Rank #2.
Dorman Products: It is a leading supplier of Dealer Exclusive replacement parts to the Automotive, Medium and Heavy Duty Aftermarkets. On May 5, 2025, the company released its first-quarter 2025 results. Its net sales improved 8.3% year over year, while adjusted earnings per share surged 54%.
The Zacks Consensus Estimate for its 2025 sales indicates an improvement of 4.7% from the 2024 actual. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 9.7%. It currently has a Zacks Rank #2.
Sterling Infrastructure: It operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions, principally in the United States. On May 5, 2025, the company announced its first-quarter 2025 results. Its revenues increased 7% year over year, while adjusted earnings per share surged 29%.
STRL boasts a long-term earnings growth rate of 15%. The stock boasts an average earnings surprise of 11.54%. It currently carries a Zacks Rank #2.
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.