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5 Low-Leverage Stocks to Buy Following Key Labor Data Release
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Major stock indices in the United States ended on the green last Friday, following a key labor market data release, which came almost in line with market expectations. Notably, the latest data implied a 206,000 increase in nonfarm payrolls in June in the United States, which might have reignited Fed rate cut hopes among investors as reflected in an upward price movement in the share market.
Against this backdrop, stock market players might be in the mood for some good investments. However, since the share market has lately been on edge, we recommend stocks like Vital Farms (VITL - Free Report) , PulteGroup (PHM - Free Report) , Atmos Energy (ATO - Free Report) , Steelcase (SCS - Free Report) and Skechers (SKX - Free Report) , which have low leverage. Choosing them can shield investors from incurring huge losses in times of crisis.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
In finance, leverage is a term used to denote the practice of borrowing capital by companies to run their operations smoothly and expand the same. Such borrowings are done through debt financing. But there remains an option for equity finance. This is probably due to the cheap and easy availability of debt over equity financing.
However, debt financing has its 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 avoid companies that resort to excessive debt financing.
The crux of safe investment lies in choosing a company that is not burdened with debt, as a debt-free stock is almost impossible to find.
The equity market can be volatile at times, and, as an investor, if you don’t want to lose big time, we suggest you invest in stocks that bear low leverage and are, hence, less risky.
To identify such stocks, historically, several leverage ratios have been developed to measure the amount of debt a company bears. 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 lower debt-to-equity ratio reflects improved solvency for a company.
With the second-quarter earnings season ahead of us, investors must be eyeing stocks that have exhibited solid earnings growth in the recent past. But if a stock bears a high debt-to-equity ratio in times of economic downturn, its so-called booming earnings picture might turn into a nightmare.
The Winning Strategy
Considering the factors above, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.
Yet, an investment strategy based solely on the 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 or 2 have a proven history of success.
Excluding stocks that have a negative or a zero debt-to-equity ratio, here we present our five picks out of the 16 stocks that made it through the screen.
Vital Farms: The company offers a range of produced pasture-raised foods, which include shell eggs, butter, hard-boiled eggs, ghee and liquid whole eggs. On Jun 26, 2024, Vital Farms revealed plans to expand its resilient supply chain with a second world-class egg washing and packing facility located in Seymour, Indiana. The new 72-acre facility will enable Vital Farms to continue growing its pasture-raised egg business and is expected to help generate more than $350 million in additional revenues.
VITL delivered an average four-quarter earnings surprise of 102.10%. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for VITL’s 2024 sales suggests a solid 22.3% improvement from 2023’s reported figure.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 3, 2024, PulteGroup announced that it has started building its Ryehill and Del Webb Sugar Land at Ryehill, new masterfully planned communities perfectly located in Sugar Land near Hwy 59 and Grand Parkway. Once completed, these communities will feature approximately 2,500 homes offering a variety of flexible floorplans.
PHM currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 17.6%. The Zacks Consensus Estimate for PHM’s 2024 sales suggests a 7.9% improvement from the year-ago reported quarter.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 8, Atmos Energy announced second-quarter fiscal 2024 results. Its earnings per share came in at $4.93, higher than the year-ago quarter’s level of $4.40.
ATO currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for ATO’s fiscal 2024 sales implies an increase of 9.4% from fiscal 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
Steelcase: It is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services. On Jun 11, 2024, Steelcase, along with Logitech, launched OcularTM View. This extended reality experience immerses people in virtual conversations that make them feel like they are sitting across from each other even though they’re miles apart.
SCS currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2024 sales implies an improvement of 3.3% from the 2023 reported sales figure. SCS has a long-term earnings growth rate of 10%.
Skechers: It designs, develops, markets, and distributes footwear for men, women, and children in the United States and overseas under the SKECHERS name, as well as under several uniquely branded names. On May 14, 2024, the company announced its partnership with John Deere, the iconic American brand and signature leaping deer logo, to expand the work, outdoor and fashion industries worldwide with a co-branded professional and lifestyle offering. The footwear collection is designed for agricultural professionals, construction workers, outdoor enthusiasts and trendsetters — all seeking top-of-their-field brands that offer the latest innovations.
SKX currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 17.2%. The Zacks Consensus Estimate for SKX’s 2024 sales suggests a 10.6% improvement from the 2023 reported figure.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your strategies and backtest them first before taking the investment plunge.
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.
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.
Image: Bigstock
5 Low-Leverage Stocks to Buy Following Key Labor Data Release
Major stock indices in the United States ended on the green last Friday, following a key labor market data release, which came almost in line with market expectations. Notably, the latest data implied a 206,000 increase in nonfarm payrolls in June in the United States, which might have reignited Fed rate cut hopes among investors as reflected in an upward price movement in the share market.
Against this backdrop, stock market players might be in the mood for some good investments. However, since the share market has lately been on edge, we recommend stocks like Vital Farms (VITL - Free Report) , PulteGroup (PHM - Free Report) , Atmos Energy (ATO - Free Report) , Steelcase (SCS - Free Report) and Skechers (SKX - Free Report) , which have low leverage. Choosing them can shield investors from incurring huge losses in times of crisis.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
In finance, leverage is a term used to denote the practice of borrowing capital by companies to run their operations smoothly and expand the same. Such borrowings are done through debt financing. But there remains an option for equity finance. This is probably due to the cheap and easy availability of debt over equity financing.
However, debt financing has its 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 avoid companies that resort to excessive debt financing.
The crux of safe investment lies in choosing a company that is not burdened with debt, as a debt-free stock is almost impossible to find.
The equity market can be volatile at times, and, as an investor, if you don’t want to lose big time, we suggest you invest in stocks that bear low leverage and are, hence, less risky.
To identify such stocks, historically, several leverage ratios have been developed to measure the amount of debt a company bears. 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 lower debt-to-equity ratio reflects improved solvency for a company.
With the second-quarter earnings season ahead of us, investors must be eyeing stocks that have exhibited solid earnings growth in the recent past. But if a stock bears a high debt-to-equity ratio in times of economic downturn, its so-called booming earnings picture might turn into a nightmare.
The Winning Strategy
Considering the factors above, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.
Yet, an investment strategy based solely on the 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 or 2 have a proven history of success.
Excluding stocks that have a negative or a zero debt-to-equity ratio, here we present our five picks out of the 16 stocks that made it through the screen.
Vital Farms: The company offers a range of produced pasture-raised foods, which include shell eggs, butter, hard-boiled eggs, ghee and liquid whole eggs. On Jun 26, 2024, Vital Farms revealed plans to expand its resilient supply chain with a second world-class egg washing and packing facility located in Seymour, Indiana. The new 72-acre facility will enable Vital Farms to continue growing its pasture-raised egg business and is expected to help generate more than $350 million in additional revenues.
VITL delivered an average four-quarter earnings surprise of 102.10%. It currently sports a Zacks Rank #1. The Zacks Consensus Estimate for VITL’s 2024 sales suggests a solid 22.3% improvement from 2023’s reported figure.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 3, 2024, PulteGroup announced that it has started building its Ryehill and Del Webb Sugar Land at Ryehill, new masterfully planned communities perfectly located in Sugar Land near Hwy 59 and Grand Parkway. Once completed, these communities will feature approximately 2,500 homes offering a variety of flexible floorplans.
PHM currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 17.6%. The Zacks Consensus Estimate for PHM’s 2024 sales suggests a 7.9% improvement from the year-ago reported quarter.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 8, Atmos Energy announced second-quarter fiscal 2024 results. Its earnings per share came in at $4.93, higher than the year-ago quarter’s level of $4.40.
ATO currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for ATO’s fiscal 2024 sales implies an increase of 9.4% from fiscal 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
Steelcase: It is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services. On Jun 11, 2024, Steelcase, along with Logitech, launched OcularTM View. This extended reality experience immerses people in virtual conversations that make them feel like they are sitting across from each other even though they’re miles apart.
SCS currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2024 sales implies an improvement of 3.3% from the 2023 reported sales figure. SCS has a long-term earnings growth rate of 10%.
Skechers: It designs, develops, markets, and distributes footwear for men, women, and children in the United States and overseas under the SKECHERS name, as well as under several uniquely branded names. On May 14, 2024, the company announced its partnership with John Deere, the iconic American brand and signature leaping deer logo, to expand the work, outdoor and fashion industries worldwide with a co-branded professional and lifestyle offering. The footwear collection is designed for agricultural professionals, construction workers, outdoor enthusiasts and trendsetters — all seeking top-of-their-field brands that offer the latest innovations.
SKX currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 17.2%. The Zacks Consensus Estimate for SKX’s 2024 sales suggests a 10.6% improvement from the 2023 reported figure.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your strategies and backtest them first before taking the investment plunge.
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.