Yahoo Finance 5 Low Leverage Stocks to Buy Amid a Rise in Labor Cost
The majority of U.S. stocks ended in the red on the last day of April, as recent data reflected a higher-than-expected rise in labor costs. This data, in addition to the dismal market consensus, with most investors expecting the U.S. central bank to leave interest rates unchanged, must have added to Wall Street’s woes.
In such a situation, an investor might not feel confident about investing in the stock market. However, a prudent investor knows that this is the right time to buy stocks that are safe bets. To this end, we recommend stocks like NVIDIA NVDA, PulteGroup PHM, Montrose Environmental Group MEG, Janus Henderson Group JHG and Hamilton Insurance Group HG, which bear 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 in full swing, 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.
NVIDIA: The company is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. On Apr 29, 2024, NVIDIA announced that Linz, an Austria-based startup, is revolutionizing maritime safety with NVDA’s edge artificial intelligence (AI) and computer vision technology, creating a safer journey on every wave. This reflects the solid demand that the company enjoys in the naval AI space.
NVDA boasts a four-quarter average earnings surprise of 20.18%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for NVDA’s fiscal 2025 sales suggests a solid 74.1% improvement from fiscal 2024’s reported figure.
PulteGroup: The company engages in homebuilding and financial services businesses, primarily in the United States. On Apr 23, 2024, PulteGroup announced its first-quarter 2024 results. Its home sale revenues increased 10% year over year to $3.8 billion, whereas net new orders grew 14%.
PHM currently sports a Zacks Rank #1. The company boasts a long-term earnings growth rate of 17.6%. The Zacks Consensus Estimate for PHM’s 2024 sales suggests a 7.1% improvement from the year-ago reported quarter.
Montrose Environmental Group: It provides environmental services principally in the United States. On Apr 2, 2024, MEG announced its acquisition of Engineering & Technical Associates, Inc. ("ETA"), a leader in Process Safety Management. ETA will join Montrose’s Assessment, Permitting & Response segment. Montrose Environmental also announced an increase in its 2024 revenue and consolidated adjusted EBITDA outlook, backed by continued strong organic performance.
MEG currently carries a Zacks Rank #2. The company boasts a four-quarter average earnings surprise of 15.99%. The Zacks Consensus Estimate for MEG’s 2024 sales implies an increase of 13.8% from 2023 sales. You can see the complete list of today’s Zacks #1 Rank stocks here.
Janus Henderson Group: It is an investment management company that provides investment advisors for equities, fixed income, property and private equity sectors. On Apr 15, 2024, Janus Henderson revealed that the firm has entered into a strategic partnership with Forum Investment Group to market the Forum Real Estate Income Fund, a real estate private credit and debt-focused interval fund. The Fund targets high income with relatively low volatility by providing access to institutional real estate debt investments not typically available to individual investors.
JHG currently carries a Zacks Rank #2. The company has a long-term earnings growth rate of 7.4%. The Zacks Consensus Estimate for JHG’s 2024 sales implies an improvement of 9.9% from the 2023 reported sales figure.
Hamilton Insurance: The company underwrites specialty insurance and reinsurance risks principally in Bermuda and internationally. On Apr 30, 2024, Hamilton Insurance announced that AM Best has upgraded the company’s Financial Strength Rating to “A” (Excellent), which reflects, among other assessments, Hamilton’s balance sheet strength, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.
HG currently sports a Zacks Rank #1. The company delivered an earnings surprise of 101.75% in the last reported quarter. The Zacks Consensus Estimate for HG’s 2024 sales suggests a 27.8% improvement from the 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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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Montrose Environmental Group, Inc. (MEG) : Free Stock Analysis Report
Janus Henderson Group plc (JHG) : Free Stock Analysis Report
Hamilton Insurance Group, Ltd. (HG) : Free Stock Analysis Report
