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Buy These 5 Low-Leverage Stocks to Navigate Short-Term Market Upside
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Key Takeaways
Zacks highlights five low-leverage stocks as safer options during potential market volatility.
THG, AA, PNR, ESLT, and DRS show solid growth prospects with improving 2025 revenue estimates.
All five stocks currently carry a Zacks Rank #2, signaling strong buy potential in the near term.
Major U.S. benchmarks rose less than 1% at the start of this week, primarily backed by big tech corporations’ gains following Nvidia’s $100 billion worth investment-partnership announcement with OpenAI.
While this might give a temporary boost to investor confidence, the momentum may not last long, given the growing market consensus of a government shutdown in the United States, as Congress approaches the Sept. 30 funding deadline without a clear agreement in place.
In such a situation, an investor might not feel confident enough to invest 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 The Hanover Insurance Group ((THG - Free Report) ), Alcoa Corp. ((AA - Free Report) ), Pentair ((PNR - Free Report) ), Elbit Systems ((ELST - Free Report) ) and Leonardo DRS, Inc. ((DRS - Free Report) ). These stocks bear low leverage and, therefore, should be a safer option for investors who 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 can help investors.
What’s the Significance of Low-Leverage Stocks?
In finance, leverage refers to the practice of borrowing capital to help companies run their operations smoothly and expand their business. 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. To avoid considerable losses in your portfolio, it is advisable to avoid companies that rely excessively on 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 such common ratio.
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 2025 earnings season approaching, investors should be eyeing stocks that have demonstrated solid earnings growth in recent periods.
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 19 stocks that made it through the screen.
The Hanover Insurance Group.: It offers standard and specialized insurance protection for small and mid-sized businesses, as well as for homes, automobiles and other personal items. On Aug. 26, 2025, The Hanover Insurance Group announced the expansion of its Business Owner's Advantage product, now designed to serve a wider spectrum of life sciences organizations. The expanded offering builds upon Hanover’s established expertise in supporting more complex, mid-sized life sciences companies, further underscoring its commitment to clients across all stages of development. This move positions THG to expand its market presence, strengthen client relationships, and capitalize on growth opportunities in the rapidly evolving life sciences sector.
The Zacks Consensus Estimate for THG’s 2025 revenues suggests an improvement of 5.4% from the 2024 reported figure. The Zacks Consensus Estimate for 2025 earnings suggests an improvement of 17.5% from the 2024 reported numbers. It currently has a Zacks Rank #2.
Alcoa Corp: It is a global industry leader in bauxite, alumina and aluminum products. On Sept. 18, 2025, Alcoa, in partnership with Eurasia Group, released its new white paper that explores how rising aluminum demand for green technologies drives the sector’s global competitiveness, while urging further decarbonization and innovation. The report highlights aluminum’s pivotal role in the energy transition and underscores Alcoa’s leadership in adopting renewable energy and developing low-carbon products.
The Zacks Consensus Estimate for AA’s 2025 sales suggests a year-over-year improvement of 6.1%. The stock boasts a long-term (three-to-five years) earnings growth rate of 51.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pentair: It delivers a comprehensive range of smart, sustainable water solutions to homes, business and industry globally. Its portfolio of solutions enables customers to access clean, safe water, reduce water consumption, and recover and reuse it. On Sept. 18, 2025, Pentair announced the completion of its previously announced acquisition of Hydra-Stop LLC from Madison Industries for approximately $290 million, subject to customary adjustments. This strategic acquisition should expand PNR’s offerings in the municipal water supply space.
The Zacks Consensus Estimate for PNR’s 2025 sales suggests a year-over-year improvement of 1.5%. The stock boasts a long-term earnings growth rate of 10.8%. It currently carries a Zacks Rank #2.
Elbit Systems: It is a worldwide leader in Night Vision Goggles Head-Up Displays (``NVG-HUD''). On Sept. 9, 2025, Elbit Systems launched Frontier, its cutting-edge wide-area persistent surveillance system, designed to address the increasing complexity and intensity of border defense challenges.
The Zacks Consensus Estimate for ESLT’s 2025 sales indicates an improvement of 13.8% from the 2024 reported actuals. The stock boasts a long-term earnings growth rate of 23.3%. It currently carries a Zacks Rank #2.
Leonardo DRS: It develops and manufactures advanced defense products for the U.S. military, intelligence agencies and allies. On Sept. 8, 2025, Leonardo DRS announced the launch of its new product line of high-performance AI-enabled Ground Vehicle Architecture Smart Display systems called Rugged Smart Displays – Ground (RSD-G). The next-generation tactical computing systems are designed to set a new standard for ruggedness, performance, and connectivity compared to existing tactical smart display systems used in ground combat vehicles.
The Zacks Consensus Estimate for DRS’ 2025 sales suggests an improvement of 10.9% from the 2024 reported figure. The stock boasts a long-term earnings growth rate of 17.3%. It currently has a Zacks Rank #2.
You can get the remaining 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 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 to Navigate Short-Term Market Upside
Key Takeaways
Major U.S. benchmarks rose less than 1% at the start of this week, primarily backed by big tech corporations’ gains following Nvidia’s $100 billion worth investment-partnership announcement with OpenAI.
While this might give a temporary boost to investor confidence, the momentum may not last long, given the growing market consensus of a government shutdown in the United States, as Congress approaches the Sept. 30 funding deadline without a clear agreement in place.
In such a situation, an investor might not feel confident enough to invest 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 The Hanover Insurance Group ((THG - Free Report) ), Alcoa Corp. ((AA - Free Report) ), Pentair ((PNR - Free Report) ), Elbit Systems ((ELST - Free Report) ) and Leonardo DRS, Inc. ((DRS - Free Report) ). These stocks bear low leverage and, therefore, should be a safer option for investors who 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 can help investors.
What’s the Significance of Low-Leverage Stocks?
In finance, leverage refers to the practice of borrowing capital to help companies run their operations smoothly and expand their business. 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. To avoid considerable losses in your portfolio, it is advisable to avoid companies that rely excessively on 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 such common ratio.
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 2025 earnings season approaching, investors should be eyeing stocks that have demonstrated solid earnings growth in recent periods.
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 19 stocks that made it through the screen.
The Hanover Insurance Group.: It offers standard and specialized insurance protection for small and mid-sized businesses, as well as for homes, automobiles and other personal items. On Aug. 26, 2025, The Hanover Insurance Group announced the expansion of its Business Owner's Advantage product, now designed to serve a wider spectrum of life sciences organizations. The expanded offering builds upon Hanover’s established expertise in supporting more complex, mid-sized life sciences companies, further underscoring its commitment to clients across all stages of development. This move positions THG to expand its market presence, strengthen client relationships, and capitalize on growth opportunities in the rapidly evolving life sciences sector.
The Zacks Consensus Estimate for THG’s 2025 revenues suggests an improvement of 5.4% from the 2024 reported figure. The Zacks Consensus Estimate for 2025 earnings suggests an improvement of 17.5% from the 2024 reported numbers. It currently has a Zacks Rank #2.
Alcoa Corp: It is a global industry leader in bauxite, alumina and aluminum products. On Sept. 18, 2025, Alcoa, in partnership with Eurasia Group, released its new white paper that explores how rising aluminum demand for green technologies drives the sector’s global competitiveness, while urging further decarbonization and innovation. The report highlights aluminum’s pivotal role in the energy transition and underscores Alcoa’s leadership in adopting renewable energy and developing low-carbon products.
The Zacks Consensus Estimate for AA’s 2025 sales suggests a year-over-year improvement of 6.1%. The stock boasts a long-term (three-to-five years) earnings growth rate of 51.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pentair: It delivers a comprehensive range of smart, sustainable water solutions to homes, business and industry globally. Its portfolio of solutions enables customers to access clean, safe water, reduce water consumption, and recover and reuse it. On Sept. 18, 2025, Pentair announced the completion of its previously announced acquisition of Hydra-Stop LLC from Madison Industries for approximately $290 million, subject to customary adjustments. This strategic acquisition should expand PNR’s offerings in the municipal water supply space.
The Zacks Consensus Estimate for PNR’s 2025 sales suggests a year-over-year improvement of 1.5%. The stock boasts a long-term earnings growth rate of 10.8%. It currently carries a Zacks Rank #2.
Elbit Systems: It is a worldwide leader in Night Vision Goggles Head-Up Displays (``NVG-HUD''). On Sept. 9, 2025, Elbit Systems launched Frontier, its cutting-edge wide-area persistent surveillance system, designed to address the increasing complexity and intensity of border defense challenges.
The Zacks Consensus Estimate for ESLT’s 2025 sales indicates an improvement of 13.8% from the 2024 reported actuals. The stock boasts a long-term earnings growth rate of 23.3%. It currently carries a Zacks Rank #2.
Leonardo DRS: It develops and manufactures advanced defense products for the U.S. military, intelligence agencies and allies. On Sept. 8, 2025, Leonardo DRS announced the launch of its new product line of high-performance AI-enabled Ground Vehicle Architecture Smart Display systems called Rugged Smart Displays – Ground (RSD-G). The next-generation tactical computing systems are designed to set a new standard for ruggedness, performance, and connectivity compared to existing tactical smart display systems used in ground combat vehicles.
The Zacks Consensus Estimate for DRS’ 2025 sales suggests an improvement of 10.9% from the 2024 reported figure. The stock boasts a long-term earnings growth rate of 17.3%. It currently has a Zacks Rank #2.
You can get the remaining 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 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.