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Zacks.com featured highlights include: DAQO New Energy, Louisiana Pacific, Nucor Corp, West Pharmaceutical Services and PulteGroup

·5 min read

Chicago, IL – May 7, 2021 – Stocks in this week’s article are DAQO New Energy Corp. DQ, Louisiana Pacific Corp. LPX, Nucor Corp. NUE, West Pharmaceutical Services WST and PulteGroup Inc. PHM.

5 Stocks with Low Debt-to-Equity Ratios to Boost Your Portfolio

Equity investors often look for stocks that have historically exhibited solid growth trends. However, one must be well aware about the chosen stocks’ debt levels since a debt-ridden stock might not perform well over the long run, even if it has recorded solid growth in the recent past.

Here comes the concept of leverage, which refers to the use of exogenous funds by companies to run their operations smoothly and expand the same. It is imperative to mention in this context that although there is an option for equity financing, the majority of companies opt for debt financing to obtain such exogenous funds.

However, the level of debt financing plays a crucial role in a stock’s performance because if too much debt is opted for by a company there lies the risk of default. This is because debt financing means borrowing against future earnings, which simply means that instead of using all future profits to grow the business, one has to allocate a portion for repayments.

So, for a prudent investor, a safe strategy of choosing stocks should also include search for stocks that bear low leverage, apart from other factors. Therefore, measuring the leverage of a particular stock forms an integral part of the safe investment procedure.  

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 this year’s first-quarter reporting cycle already past the halfway mark, investors might be eyeing stocks that have exhibited solid earnings growth in the 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.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1510106/5-stocks-with-low-debt-to-equity-ratio-to-boost-your-portfolio

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.

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Strong Stocks that Should Be in the News

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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
 
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
LouisianaPacific Corporation (LPX) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
 
DAQO New Energy Corp. (DQ) : Free Stock Analysis Report
 
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