Yahoo Finance 5 Low-Leverage Stocks to Buy Amid Cooling Inflation Data
Major stock indices in the United States ended on a mixed note last Friday, as conflicting factors impacted the overall market. While a continued cooling of inflation was a key growth catalyst, skepticism regarding when the Federal Reserve will lower interest rates might have kept some investors on the sidelines.
A prudent investor knows that this is the right time to buy stocks that are safe bets. To this end, we recommend stocks like Virco Manufacturing VIRC, Americold Realty Trust COLD, Atmos Energy ATO, Vitesse Energy VTS and EZCORP EZPW, 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 first-quarter earnings season 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 17 stocks that made it through the screen.
Virco Manufacturing: The company designs, produces and distributes quality furniture for the contract and education markets worldwide. On Jun 7, 2024, Virco released first-quarter fiscal 2024 results. Its shipments surged 33.7% year over year.
VIRC boasts a four-quarter average earnings surprise of 74.93%. It sports a Zacks Rank #1 currently. The Zacks Consensus Estimate for VIRC’s fiscal 2024 sales suggests a solid 13.5% improvement from fiscal 2023’s reported figure.
Americold Realty Trust: It is a real estate investment trust that owns and operates temperature-controlled warehouses. On May 9, 2024, Americold released first-quarter 2024 results. Its operating income improved 29.3% year over year.
COLD currently holds a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 9.15%. The Zacks Consensus Estimate for COLD’s 2024 sales suggests a 3.5% 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 9.2% from fiscal 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vitesse Energy: It is an independent energy company engaged in the acquisition, development and production of non-operated oil and natural gas properties principally in the United States. On May 6, 2024, the company released first-quarter 2024 results. Its revenues increased 6% year over year.
VTS currently sports a Zacks Rank #1. The Zacks Consensus Estimate for VTS’ 2024 sales implies an improvement of 16.9% from the 2023 reported sales figure. The Zacks Consensus Estimate for its 2024 earnings indicates an improvement of 7.2% from the 2023 reported figure.
EZCORP: It is engaged in establishing, acquiring and operating pawnshops that function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. On May 1, 2024, the company reported second-quarter fiscal 2024 results. Its total revenues increased 11% year over year, while its gross profit improved 12%.
EZPW currently holds a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 20.92%. The Zacks Consensus Estimate for EZPW’s fiscal 2024 sales suggests a 10.7% improvement from the fiscal 2023 reported figure.
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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.
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EZCORP, Inc. (EZPW) : Free Stock Analysis Report
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
Virco Manufacturing Corporation (VIRC) : Free Stock Analysis Report
Americold Realty Trust Inc. (COLD) : Free Stock Analysis Report
Vitesse Energy, Inc. (VTS) : Free Stock Analysis Report
