For Immediate Release
Chicago, IL – January 29, 2020 – Stocks in this week’s article are Gibraltar Industries Inc.
ROCK, Amedisys ( AMED Quick Quote AMED - Free Report) , Chevron Corp. CVX, MDU Resources Group MDU and Chemed Corp. CHE. Buy These 5 Low Leverage Stocks This Earnings Season
In corporate finance, leverage is a popular investment strategy that involves borrowing of funds to expand business, purchase inventory and other assets as well as support different aspects of business operations. This borrowing can be through equity or debt financing.
Now, the theory of cost reveals that most companies prefer debt financing over equity since debt is cheaper, especially in periods of low interest rates. This is because when a company resorts to debt financing, it takes on fixed expenses in the form of interest payments for a specific time period.
Yet, debt financing has its share of drawbacks. Particularly, one should keep in mind that debt financing is a feasible option as long as the companies succeed in generating a higher rate of return compared to the interest rate. Exorbitant debt financing might even cause bankruptcy in a worst-case scenario.
Nevertheless, this should not discourage investors from spending on U.S. stocks since debt has been part of the economy since its foundation and yet the country leads others.
Since, a debt-free entity is rare to find, we should focus on those carrying low debt levels. Historically, several leverage ratios have been developed to measure the amount of debt a company bears. Debt-to-equity ratio is one of the most common ratios.
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 company with a lower debt-to-equity ratio shows improved solvency for a company.
With the Q4 reporting cycle gaining pace slowly, investors must be looking for stocks that have a history of reporting solid results. However, blindly investing in stocks displaying solid earnings growth, without considering their debt level, is not a wise move.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/736610/buy-these-5-low-leverage-stocks-this-earnings-season 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. About Screen of the Week
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