U.S. markets open in 32 minutes
  • S&P Futures

    4,121.25
    -25.00 (-0.60%)
     
  • Dow Futures

    34,076.00
    -107.00 (-0.31%)
     
  • Nasdaq Futures

    13,188.50
    -157.50 (-1.18%)
     
  • Russell 2000 Futures

    2,175.30
    -28.00 (-1.27%)
     
  • Crude Oil

    66.20
    +0.92 (+1.41%)
     
  • Gold

    1,838.10
    +2.00 (+0.11%)
     
  • Silver

    27.58
    -0.08 (-0.30%)
     
  • EUR/USD

    1.2133
    -0.0019 (-0.16%)
     
  • 10-Yr Bond

    1.6450
    +0.0210 (+1.29%)
     
  • Vix

    23.08
    +3.42 (+17.40%)
     
  • GBP/USD

    1.4131
    -0.0012 (-0.09%)
     
  • USD/JPY

    109.0040
    +0.3840 (+0.35%)
     
  • BTC-USD

    56,401.05
    +1,034.41 (+1.87%)
     
  • CMC Crypto 200

    1,530.16
    +1,287.48 (+530.53%)
     
  • FTSE 100

    6,993.94
    +45.95 (+0.66%)
     
  • Nikkei 225

    28,147.51
    -461.08 (-1.61%)
     

Buy These 5 Low Leverage Stocks to Boost Your Portfolio

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Aparajita Dutta
·5 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Leverage is a common practice in corporate finance, which refers to the use of exogenous funds by companies to run their operations smoothly and expand the same. Now, companies can obtain these exogenous funds either through equity financing or debt financing.

Statistically, it is found that debt financing is preferred over equity because of its easy and cheap availability.

However, debt financing has its own 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 avert companies that resort to exorbitant debt financing.

Therefore, the crux of safe investment lies in choosing a company that is not overtly burdened with debt as a debt-free stock is almost impossible to be found.  

To identify such stocks, historically several leverage ratios have been developed to measure the amount of debt a company bears and 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 company with a lower debt-to-equity ratio shows improved solvency for a company.

With the fourth quarter reporting cycle almost in its last lap, investors might be eyeing stocks that have exhibited solid earnings growth in recent quarters. But if a stock bears a high debt-to-equity ratio, in times of economic downturns, its so-called booming earnings picture might turn into a nightmare.

The Winning Strategy

Considering the aforementioned factors, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.

However, an investment strategy based solely on 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 (Strong Buy) or 2 (Buy) have a proven history of success.

Excluding stocks that have a negative or a zero debt-to-equity ratio, here are five of the 29 stocks that made it through the screen.

MarineMax, Inc. HZO: It is the United States’ largest recreational boat and yacht retailer. The company has an earnings surprise of 99.89%, on average, in the trailing four quarters and a Zacks Rank #2, currently.

Quanex Building Product Corporation NX: It is a manufacturer of components like energy-efficient fenestration products in addition to kitchen and bath cabinet components that are sold to Original Equipment Manufacturers in the building products industry. The company currently has a Zacks Rank #1 and an earnings surprise of 55.81% in the trailing four quarters, on average.

LouisianaPacific Corporation LPX: It is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. The company came up with a four-quarter earnings surprise of 41.54%, on average, and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

STMicroelectronics N.V. STM: It is a global independent semiconductor company, which designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices. Currently, the company carries a Zacks Rank of 2 and came up with a four-quarter earnings surprise of 1.24%, on average.

Franklin Electric Co., Inc. FELE: It is a global leader in the production and marketing of systems and components for the movement of water and automotive fuels. It currently holds a Zacks Rank #2 and delivered a four-quarter earnings surprise of 19.15%, on average.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.

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.

 


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
STMicroelectronics N.V. (STM) : Free Stock Analysis Report
 
Franklin Electric Co., Inc. (FELE) : Free Stock Analysis Report
 
Quanex Building Products Corporation (NX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research