For Immediate Release
Chicago, IL – July 24, 2018 - Stocks in this week’s article include: HollyFrontier Corp. HFC, Amedisys Inc. AMED, MGM Growth Properties LLC MGP, Louisiana-Pacific Corp. LPX and Houlihan Lokey, Inc. HLI.
Screen of the Week of Zacks Investment Research:
Bet on These 5 Low-Leverage Stocks for Safe Returns
Leverage, in particular financial leverage, is a popular investment strategy of using borrowed capital by corporations to finance their operations as well as expand the same. While there exist options for equity financing, historically, debt financing has achieved more popularity when compared to equity financing.
This is because, on availing debt financing, the company’s equity does not get diluted as a result of issuing more shares of the stock. In other words, the borrower has no claim in the company’s shares.
Another perk of debt financing is that the interest on debt is tax deductible.
Interestingly, the United States — the world’s richest economy — is the biggest borrower as well. In fact, according to the fiscal 2019 federal budget, at the end of fiscal 2018, gross U.S. federal government debt is estimated to be $21.09 trillion, more than double the debt load in the last decade.
Yet, no one voluntarily wishes to be part of a debt-ridden nation. This is because debt brings with it the burden of interest payments.
Then again, this should not dissuade one from investing in U.S. stocks. After all, in spite of such high debt levels, the United States remains the largest economy in the world in terms of GDP, representing a quarter share of the global economy per the latest World Bank figures.
The problem arises when the amount of debt a company bears becomes exorbitant. In fact, companies with high debt loads are more vulnerable during economic downturns and can even go bankrupt.
Empirically it has been found that in periods of low interest rates, debt financing has gained more traction. At present, with robust parameters supporting growth across the U.S. economy and thereby favoring interest rate hike, the market is not very attractive more hugely burdened companies. So, the crux of safe investment lies in identifying low leverage stocks as debt-free stocks are rare.
Therefore, to safeguard one’s portfolio from losses, an investor should prudently determine whether the stock’s debt level is sustainable. Historically, several leverage ratios have been developed to measure the amount of debt a company bears and 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 indicates improved solvency for a company.
As we are off to a strong start in the Q2 earnings season, investors must be eyeing companies that have historically exhibited solid earnings growth and are expected to do the same this time around. However, blindly pursuing high earnings yielding stocks might drain all your money before you know, if the stock bears a high debt-to-equity ratio.
Considering this, it will be wise for investors to select companies with low leverage. These are financially more secure and immune to financial bankruptcy.
And that's what we're screening for today…
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/312711/bet-on-these-5-low-leverage-stocks-for-safe-returns
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Louisiana-Pacific Corporation (LPX) : Free Stock Analysis Report
Houlihan Lokey, Inc. (HLI) : Free Stock Analysis Report
Amedisys, Inc. (AMED) : Free Stock Analysis Report
HollyFrontier Corporation (HFC) : Free Stock Analysis Report
MGM Growth Properties LLC (MGP) : Free Stock Analysis Report
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