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5 Low-Leverage Stocks to Buy Following Dismal Job Data Release
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Major U.S. stock indices witnessed a notable downfall on Sep 6, reflecting investors’ disappointment surrounding U.S. job data as it failed to meet market expectations. Notably, the latest report from the U.S. Labor Department reflected a lower-than-expected increase in the nation’s employment in the month of August.
This might dissuade an investor from spending on shares. However, a prudent investor knows that such periods of low prices are perfect for buying stocks, allowing them to earn profit in times of high price. However, keeping in mind the volatile situation of the world economy lately, it is advisable to choose stocks that come with low leverage, thereby offering less risk during periods of uncertainty. In this regard, we recommend stocks like Ingredion (INGR - Free Report) , PulteGroup (PHM - Free Report) , Hamilton Insurance Group (HG - Free Report) , SK Telecom (SKM - Free Report) and Limbach (LMB - Free Report) . These stocks bear low leverage and, thereby, should be a safer option for investors if they don’t want to lose big in times of market turmoil.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
What’s the Significance of Low-Leverage Stocks?
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 mostly behind 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 12 stocks that made it through the screen.
Ingredion: The company is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. On Aug 6, 2024, Ingredion announced its second-quarter 2024 results. Its adjusted earnings per share of $2.87 improved 24% year over year.
INGR delivered an average four-quarter earnings surprise of 10.97%. It currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 11%.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 7, 2024, PulteGroup announced its second-quarter 2024 results. Its net revenues rose 9.8% year over year in the second quarter, while earnings improved a solid 19%.
PHM currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 19%. The Zacks Consensus Estimate for PHM’s 2024 sales suggests an 8.5% improvement from the 2023 reported actuals.
Hamilton Insurance Group: It underwrites specialty insurance and reinsurance risks principally in Bermuda. On Aug 7, 2024, Hamilton Insurance announced its second-quarter 2024 results. Its gross premiums written increased 19.5% year over year in the last reported quarter, while net premiums earned rose 26.3%.
The company boasts a four-quarter average earnings surprise of 53.80%. The Zacks Consensus Estimate for HG’s 2024 sales implies an increase of 48.2% from 2023 sales. HG currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
SK Telecom: It is the world's first commercial CDMA digital cellular service. On Aug 21, 2024, SKM announced that it has entered into a partnership agreement with Lambda, the GPU cloud company founded by AI engineers, for collaboration in the AI cloud business. Establishing a strategic partnership with Lambda underscores SKT’s commitment to providing unprecedented access to scalable AI infrastructure in South Korea.
SKM currently carries a Zacks Rank #2. It has a long-term earnings growth rate of 3.5%.
Limbach: It is a building system solution firm that engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. On Sep 3, 2024, Limbach announced that it has acquired Kent Island Mechanical for an initial purchase price of $15 million. KIM is a leading service provider to facility owners who require solutions for maintaining complex building systems.
LMB currently sports a Zacks Rank #1. The company has a four-quarter average earnings surprise of 67.85%. The Zacks Consensus Estimate for LMB’s 2024 sales suggests a 1.3% 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.
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5 Low-Leverage Stocks to Buy Following Dismal Job Data Release
Major U.S. stock indices witnessed a notable downfall on Sep 6, reflecting investors’ disappointment surrounding U.S. job data as it failed to meet market expectations. Notably, the latest report from the U.S. Labor Department reflected a lower-than-expected increase in the nation’s employment in the month of August.
This might dissuade an investor from spending on shares. However, a prudent investor knows that such periods of low prices are perfect for buying stocks, allowing them to earn profit in times of high price. However, keeping in mind the volatile situation of the world economy lately, it is advisable to choose stocks that come with low leverage, thereby offering less risk during periods of uncertainty. In this regard, we recommend stocks like Ingredion (INGR - Free Report) , PulteGroup (PHM - Free Report) , Hamilton Insurance Group (HG - Free Report) , SK Telecom (SKM - Free Report) and Limbach (LMB - Free Report) . These stocks bear low leverage and, thereby, should be a safer option for investors if they don’t want to lose big in times of market turmoil.
Now, before selecting low-leverage stocks, let’s explore what leverage is and how choosing a low-leverage stock helps investors.
What’s the Significance of Low-Leverage Stocks?
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 mostly behind 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 12 stocks that made it through the screen.
Ingredion: The company is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. On Aug 6, 2024, Ingredion announced its second-quarter 2024 results. Its adjusted earnings per share of $2.87 improved 24% year over year.
INGR delivered an average four-quarter earnings surprise of 10.97%. It currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 11%.
PulteGroup: It engages in homebuilding and financial services businesses, primarily in the United States. On Jul 7, 2024, PulteGroup announced its second-quarter 2024 results. Its net revenues rose 9.8% year over year in the second quarter, while earnings improved a solid 19%.
PHM currently holds a Zacks Rank #2. The company boasts a long-term earnings growth rate of 19%. The Zacks Consensus Estimate for PHM’s 2024 sales suggests an 8.5% improvement from the 2023 reported actuals.
Hamilton Insurance Group: It underwrites specialty insurance and reinsurance risks principally in Bermuda. On Aug 7, 2024, Hamilton Insurance announced its second-quarter 2024 results. Its gross premiums written increased 19.5% year over year in the last reported quarter, while net premiums earned rose 26.3%.
The company boasts a four-quarter average earnings surprise of 53.80%. The Zacks Consensus Estimate for HG’s 2024 sales implies an increase of 48.2% from 2023 sales. HG currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
SK Telecom: It is the world's first commercial CDMA digital cellular service. On Aug 21, 2024, SKM announced that it has entered into a partnership agreement with Lambda, the GPU cloud company founded by AI engineers, for collaboration in the AI cloud business. Establishing a strategic partnership with Lambda underscores SKT’s commitment to providing unprecedented access to scalable AI infrastructure in South Korea.
SKM currently carries a Zacks Rank #2. It has a long-term earnings growth rate of 3.5%.
Limbach: It is a building system solution firm that engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. On Sep 3, 2024, Limbach announced that it has acquired Kent Island Mechanical for an initial purchase price of $15 million. KIM is a leading service provider to facility owners who require solutions for maintaining complex building systems.
LMB currently sports a Zacks Rank #1. The company has a four-quarter average earnings surprise of 67.85%. The Zacks Consensus Estimate for LMB’s 2024 sales suggests a 1.3% 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.