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5 Low-Leverage Stocks to Buy Buoyed by Impressive Tech Earnings
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Major U.S. stock indices ended in the green on Oct. 8, buoyed by strong earnings reports from a handful of tech stocks. Comparatively steadier U.S. treasury yields also boosted investors’ optimism, which was reflected in the form of positive price change on the bourses.
This might encourage investors to spend on shares. However, keeping in mind the volatile situation of the world economy lately, it is advisable to choose stocks that come with low leverage, thereby carrying less risk during periods of uncertainty. In this regard, we recommend stocks like Safran (SAFRY - Free Report) , Novartis (NVS - Free Report) , Kirby Corp. (KEX - Free Report) , Arch Capital Group (ACGL - Free Report) and Limbach (LMB - Free Report) . These stocks bear low leverage and, therefore, 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 third-quarter earnings season knocking on our doors, 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 18 stocks that made it through the screen.
Safran: The company produces aircraft and rocket engines and propulsion systems. On Oct. 7, 2024, it was announced that VietJet Air has reaffirmed its commitment for an order of more than 400 LEAP-1B engines to power Boeing 737 MAX aircraft and additional spare engines. Notably, the LEAP-1B engines are manufactured by CFM International, a joint venture between GE Aerospace and Safran. Successful delivery of these engines should boost SAFRY’s revenues.
The company boasts a long-term earnings growth rate of 32.3%. The Zacks Consensus Estimate for SAFRY’s 2024 sales suggests a 48.9% improvement from the 2023 reported actuals. It currently carries a Zacks Rank #2.
Novartis: It is a renowned pharmaceutical company. On Sept. 17, 2024, Novartis announced that the US Food and Drug Administration (FDA) has approved Kisqali in combination with an aromatase inhibitor (AI) for the adjuvant treatment of people with hormone receptor-positive/human epidermal growth factor receptor 2-negative (HR+/HER2-) stage II and III early breast cancer (EBC) at high risk of recurrence, including those with node-negative (N0) disease. This should boost Novartis’ footprint in the breast cancer medication industry.
The company boasts a long-term earnings growth rate of 8.9%. The Zacks Consensus Estimate for NVS’ 2025 sales suggests a 5.4% improvement from the 2024 estimated number. It currently carries a Zacks Rank #2.
Kirby: It is the largest domestic tank barge operator in the United States. On Aug 1, 2024, Kirby Corp. announced its second-quarter 2024 results. Its revenues grew 6.1% year over year, while earnings surged 50.5%.
The company boasts a long-term earnings growth rate of 29.8%. The Zacks Consensus Estimate for KEX’s 2024 sales implies an increase of 6.2% from 2023 sales. KEX currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital Group: It offers insurance, reinsurance and mortgage insurance across the world. On Aug. 1, 2024, Arch Capital announced that its Arch Insurance North America unit closed the acquisition of the U.S. MidCorp and Entertainment insurance businesses from Allianz. Nearly 500 former Allianz MidCorp and Entertainment employees have joined Arch and will provide continuity to clients and brokers as Arch Insurance focuses on growing its middle-market offerings.
ACGL currently carries a Zacks Rank #2. It has a long-term earnings growth rate of 6.10%. The Zacks Consensus Estimate for ACGL’s 2024 sales implies an increase of 15.3% from 2023 sales.
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 Sept. 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 boasts a long-term earnings growth rate of 12%. 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 Buoyed by Impressive Tech Earnings
Major U.S. stock indices ended in the green on Oct. 8, buoyed by strong earnings reports from a handful of tech stocks. Comparatively steadier U.S. treasury yields also boosted investors’ optimism, which was reflected in the form of positive price change on the bourses.
This might encourage investors to spend on shares. However, keeping in mind the volatile situation of the world economy lately, it is advisable to choose stocks that come with low leverage, thereby carrying less risk during periods of uncertainty. In this regard, we recommend stocks like Safran (SAFRY - Free Report) , Novartis (NVS - Free Report) , Kirby Corp. (KEX - Free Report) , Arch Capital Group (ACGL - Free Report) and Limbach (LMB - Free Report) . These stocks bear low leverage and, therefore, 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 third-quarter earnings season knocking on our doors, 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 18 stocks that made it through the screen.
Safran: The company produces aircraft and rocket engines and propulsion systems. On Oct. 7, 2024, it was announced that VietJet Air has reaffirmed its commitment for an order of more than 400 LEAP-1B engines to power Boeing 737 MAX aircraft and additional spare engines. Notably, the LEAP-1B engines are manufactured by CFM International, a joint venture between GE Aerospace and Safran. Successful delivery of these engines should boost SAFRY’s revenues.
The company boasts a long-term earnings growth rate of 32.3%. The Zacks Consensus Estimate for SAFRY’s 2024 sales suggests a 48.9% improvement from the 2023 reported actuals. It currently carries a Zacks Rank #2.
Novartis: It is a renowned pharmaceutical company. On Sept. 17, 2024, Novartis announced that the US Food and Drug Administration (FDA) has approved Kisqali in combination with an aromatase inhibitor (AI) for the adjuvant treatment of people with hormone receptor-positive/human epidermal growth factor receptor 2-negative (HR+/HER2-) stage II and III early breast cancer (EBC) at high risk of recurrence, including those with node-negative (N0) disease. This should boost Novartis’ footprint in the breast cancer medication industry.
The company boasts a long-term earnings growth rate of 8.9%. The Zacks Consensus Estimate for NVS’ 2025 sales suggests a 5.4% improvement from the 2024 estimated number. It currently carries a Zacks Rank #2.
Kirby: It is the largest domestic tank barge operator in the United States. On Aug 1, 2024, Kirby Corp. announced its second-quarter 2024 results. Its revenues grew 6.1% year over year, while earnings surged 50.5%.
The company boasts a long-term earnings growth rate of 29.8%. The Zacks Consensus Estimate for KEX’s 2024 sales implies an increase of 6.2% from 2023 sales. KEX currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital Group: It offers insurance, reinsurance and mortgage insurance across the world. On Aug. 1, 2024, Arch Capital announced that its Arch Insurance North America unit closed the acquisition of the U.S. MidCorp and Entertainment insurance businesses from Allianz. Nearly 500 former Allianz MidCorp and Entertainment employees have joined Arch and will provide continuity to clients and brokers as Arch Insurance focuses on growing its middle-market offerings.
ACGL currently carries a Zacks Rank #2. It has a long-term earnings growth rate of 6.10%. The Zacks Consensus Estimate for ACGL’s 2024 sales implies an increase of 15.3% from 2023 sales.
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 Sept. 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 boasts a long-term earnings growth rate of 12%. 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.