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5 Low-Leverage Stocks to Buy Amid Disappointing Job Data
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Major U.S. stock indices ended on a dismal note on Aug 2, reflecting investors’ disappointment following the release of discouraging U.S. job data. The latest job report showed a rise in the U.S. unemployment rate to 4.25% and a slowdown in new job creation, which sparked the possibility of an upcoming recession and resulted in a notable loss in the stock market.
Against this backdrop, stock market players might not feel confident in making share market investments. However, a prudent investor knows that one can buy stocks with low leverage even in such periods of market decline. Therefore, we recommend some safe bets like Vital Farms (VITL - Free Report) , CSW Industrials (CSWI - Free Report) , Atmos Energy (ATO - Free Report) , NiSource (NI - Free Report) and Kirby Corp. (KEX - Free Report) . 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.
As we approach the middle of the second-quarter earnings season, 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 19 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, IN. 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 24.9% improvement from the 2023 reported figure.
CSW Industrials: It manufactures and sells industrial products like coatings, sealants, adhesives and specialty chemicals. On Jul 31, 2024, CSW Industrials reported its first-quarter fiscal 2025 results. Its revenues increased 11.2% year over year to $226.2 million, while earnings grew 25.4% to $2.47.
CSWI currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 15%. The Zacks Consensus Estimate for CWSI’s fiscal 2025 sales suggests a 6.6% improvement from the fiscal 2024 reported actuals.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 8, 2024, 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.
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 6.9% from fiscal 2023 sales. ATO currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
NiSource: It provides natural gas, electricity and other products and services in the United States. On Jul 31, 2024, NiSource received a decision from the Indiana Utility Regulatory Commission (IURC) to adjust gas rates for its Northern Indiana Public Service Company LLC (NIPSCO), effective August 2024. The newly approved rates will allow for system upgrades to support economic development and job creation, along with infrastructure modernization and improvements that will directly benefit customers and communities – including an estimated $1.1 billion in investments through the end of 2024.
NI currently carries a Zacks Rank #2. The stock has an average four-quarter earnings surprise of 6.80%. NI has a long-term earnings growth rate of 6%.
Kirby: It is the largest domestic tank barge operator in the United States, which is responsible for transporting bulk liquid products. On Apr 24, 2024, the company reported its first-quarter 2024 results. Its earnings of $1.19 per share improved a solid 75% and revenues grew 7.7% on a year-over-year basis.
KEX currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 30.8%. The Zacks Consensus Estimate for KEX’s 2024 sales suggests a 6.2% 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 Amid Disappointing Job Data
Major U.S. stock indices ended on a dismal note on Aug 2, reflecting investors’ disappointment following the release of discouraging U.S. job data. The latest job report showed a rise in the U.S. unemployment rate to 4.25% and a slowdown in new job creation, which sparked the possibility of an upcoming recession and resulted in a notable loss in the stock market.
Against this backdrop, stock market players might not feel confident in making share market investments. However, a prudent investor knows that one can buy stocks with low leverage even in such periods of market decline. Therefore, we recommend some safe bets like Vital Farms (VITL - Free Report) , CSW Industrials (CSWI - Free Report) , Atmos Energy (ATO - Free Report) , NiSource (NI - Free Report) and Kirby Corp. (KEX - Free Report) . 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.
As we approach the middle of the second-quarter earnings season, 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 19 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, IN. 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 24.9% improvement from the 2023 reported figure.
CSW Industrials: It manufactures and sells industrial products like coatings, sealants, adhesives and specialty chemicals. On Jul 31, 2024, CSW Industrials reported its first-quarter fiscal 2025 results. Its revenues increased 11.2% year over year to $226.2 million, while earnings grew 25.4% to $2.47.
CSWI currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 15%. The Zacks Consensus Estimate for CWSI’s fiscal 2025 sales suggests a 6.6% improvement from the fiscal 2024 reported actuals.
Atmos Energy: It is engaged in regulated natural gas distribution and storage business. On May 8, 2024, 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.
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 6.9% from fiscal 2023 sales. ATO currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
NiSource: It provides natural gas, electricity and other products and services in the United States. On Jul 31, 2024, NiSource received a decision from the Indiana Utility Regulatory Commission (IURC) to adjust gas rates for its Northern Indiana Public Service Company LLC (NIPSCO), effective August 2024. The newly approved rates will allow for system upgrades to support economic development and job creation, along with infrastructure modernization and improvements that will directly benefit customers and communities – including an estimated $1.1 billion in investments through the end of 2024.
NI currently carries a Zacks Rank #2. The stock has an average four-quarter earnings surprise of 6.80%. NI has a long-term earnings growth rate of 6%.
Kirby: It is the largest domestic tank barge operator in the United States, which is responsible for transporting bulk liquid products. On Apr 24, 2024, the company reported its first-quarter 2024 results. Its earnings of $1.19 per share improved a solid 75% and revenues grew 7.7% on a year-over-year basis.
KEX currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 30.8%. The Zacks Consensus Estimate for KEX’s 2024 sales suggests a 6.2% 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.