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Zacks.com featured highlights include: Synopsys, Tesla, Chemed, Teekay Tankers and West Pharmaceutical Services

Zacks Equity Research

For Immediate Release

Chicago, IL – June 3, 2020 – Stocks in this week’s article are Synopsys SNPS, Tesla Inc. TSLA, Chemed Corp. CHE, Teekay Tankers Ltd. TNK and West Pharmaceutical Services WST.

Buy These 5 Low-Leverage Stocks to Invest Safely

In corporate finance, companies frequently resort to a well-known strategy called leverage, which is the use of borrowed capital in their business operations. A company can borrow either through equity or debt financing.

Empirically, it has been found that most companies prefer debt financing over equity to enhance their shareholder value. This is because debt is cheaper than equity, especially in periods of low interest rates.  To this end, it is imperative to mention that the current market situation seems favorable for corporates to take debt since the COVID-19 pandemic has forced the Federal Reserve to lower interest rate to a near-zero level.

Moreover,in case of equity financing, a shareholder not only becomes a company’s partial owner but also gets entitled to a direct claim to its future profits.

Yet, debt financing has its share of drawbacks. Particularly, one should keep in mind that debt financing is a feasible option as long as the companies succeed in generating a higher rate of return compared to the interest rate. Exorbitant debt financing might even cause a corporation’s bankruptcy in a worst-case scenario.

Especially, in times of crisis, no one can be fully sure of how a company will perform. On top of that those bearing large amount of debt are even more prone to bankruptcy. Therefore, the debt level of a company is an important point of consideration while making an investment decision.

Several leverage ratios have emerged as efficient tools to evaluate a company’s credit level to support prudent equity investments. The most popular among them is the debt-to-equity ratio.

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 company with a lower debt-to-equity ratio shows improved solvency for a company.

With Q1 earnings almost over, investors may intend to choose companies that have exhibited solid earnings growth. However, blindly pursuing high earnings yielding stocks, which have a high debt-to-equity ratio, might drain all your money before you know.

For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/959132/buy-these-5-low-leverage-stocks-to-invest-safely

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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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

 

 

 

                                                                                     


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Synopsys, Inc. (SNPS) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
 
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
 
Chemed Corporation (CHE) : Free Stock Analysis Report
 
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