For Immediate Release
Chicago, IL – May 4, 2018 - Stocks in this week’s article include: Louisiana-Pacific Corporation LPX, IDEXX Laboratories, Inc. IDXX, SolarEdge Technologies, Inc. SEDG, Curtiss-Wright Corporation CW and Autohome Inc. ATHM.
Screen of the Week of Zacks Investment Research:
Invest in These 5 Low-Leverage Stocks to Earn Steady Returns
“Growth based on debt is unsustainable, artificial” – Jose Manuel Barroso
With capital being one of the basic requirements for production, companies need exogenous funds to finance their corporate expenses, run operations smoothly as well as expand the realm of their business. This is because depending solely on retained earnings for business growth is next to impossible.
It is worth noting that among equity and debt – the two most common options used to boost a company’s future earnings – debt is the more popular one. This is perhaps due to the cheap and easy availability of debt over equity financing. Moreover, interest on debt is tax deductible, which makes it an attractive option.
However, debt financing has its own drawbacks. The problem arises when leverage, referred to as the amount of debt a company bears, becomes exorbitant. In particular, companies with large debt loads are more vulnerable during economic downturns and can even go bankrupt in the worst case scenario.
Of course, this does not mean that debt financing, which is an inherent instrument for corporations to grow their earnings, should be a taboo in corporate financing.
Nevertheless, given the current macroeconomic scenario in the United States, in favor of interest rate hikes, the market seems to be not so suitable for borrowers. In March 2018, the Federal Reserve raised rates for the sixth time since the policymaking Federal Open Market Committee began lifting rates from near zero in December 2015.
Therefore, to be on the safe side, investors should try to avoid stocks that bear large debt loads. Empirically, several leverage ratios have been constructed to measure the exact amount of debt risk a company faces in order to safeguard investors from debt traps.
Debt-to-equity ratio is one such measure, perhaps the most popular one, which has been used to evaluate a company’s credit worthiness, for potential equity investments.
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.
With the first-quarter reporting cycle in full swing right now, investors must be targeting stocks that are exhibiting solid earnings growth. But if the stocks bear a high debt-to-equity ratio, in times of economic downturns, their so-called booming earnings picture might turn into a nightmare.
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/302209/invest-in-these-5-low-leverage-stocks-to-earn-steady-returns
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Autohome Inc. (ATHM) : Free Stock Analysis Report
Curtiss-Wright Corporation (CW) : Free Stock Analysis Report
Louisiana-Pacific Corporation (LPX) : Free Stock Analysis Report
IDEXX Laboratories, Inc. (IDXX) : Free Stock Analysis Report
SolarEdge Technologies, Inc. (SEDG) : Free Stock Analysis Report
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