For Immediate Release
Chicago, IL – May 19, 2020 – Stocks in this week’s article are NextEra Energy (NEE - Free Report) , Kinsale Capital Group (KNSL - Free Report) , Vectrus, Inc. (VEC - Free Report) , Teekay Tankers Ltd. (TNK - Free Report) and West Pharmaceutical Services (WST - Free Report) .
5 Low Leverage Stocks for Prudent Investors
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 done 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.
The current market situation seems favorable for corporates to take debt since the COVID-19 pandemic has forced the Federal Reserve to lower interest rate to a near-zero level.
Yet, debt is something that gives you the chills since it brings with it the burden of repayment with additional interest in the future.
Especially, in times of crisis, no one can be fully sure of how a company will perform. On top of that those bearing large amount of debt are even more prone to bankruptcy. Therefore, the debt level of a company is an important point of consideration while making an investment decision.
Several leverage ratios have emerged as efficient tools to evaluate a company’s credit level to support prudent equity investments. The most popular among them is the debt-to-equity ratio.
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 Q1 earnings coming to an end, investors must be eyeing companies that have exhibited solid earnings growth. However, blindly pursuing high earnings yielding stocks, which have a high debt-to-equity ratio, might drain all your money before you know.
For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/931561/5-low-leverage-stocks-for-prudent-investors
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