Major U.S. stock indices slipped on Mar 11, reflecting investors’ skepticism revolving around the upcoming consumer price index (CPI) data due for release on Mar 12. With the market consensus expecting the CPI to have increased between January and February 2024, inflation remains a cause of concern for stock market investors.
In such a situation, an investor might not feel confident enough 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 Freshpet FRPT, AptarGroup ATR, Manulife Financial Corp MFC, Hawkins HWKN and Americold Realty Trust COLD, 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.
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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 fourth-quarter earnings cycle approaching its last lap, 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 15 stocks that made it through the screen.
Freshpet: The company manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. On Feb 26, 2024, the company reported its fourth-quarter and full-year 2023 results. Its fourth-quarter net sales, worth $215.4 million, went up 29.9% year over year.
FRPT boasts a four-quarter average earnings surprise of 61.83%. It holds a Zacks Rank #2 currently. The Zacks Consensus Estimate for FRPT’s 2024 sales suggests a 24.3% improvement from 2023’s reported figure.
AptarGroup: The company is a global supplier of a broad range of innovative dispensing, sealing, and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. On Feb 9, 2024, AptarGroup signed an enterprise agreement with Biogen to operate and develop digital health solutions for neurological and rare diseases. Through this collaboration, Aptar will provide a full range of capabilities, including the product management, design, development and maintenance of software applications, secured cloud hosting, and customer and marketing support to Biogen.
ATR currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 7%. The Zacks Consensus Estimate for ATR’s 2024 sales suggests a 3.8% improvement from the year-ago reported quarter.
Manulife Financial: It is one of the three dominant life insurers within its domestic Canadian market and possesses rapidly growing operations in the U.S. and several Asian countries.. On Feb 14, 2024, Manulife's Board of Directors announced an increase of 9.6% to its quarterly common shareholders' dividend, resulting in a dividend of 40 cents per share on the common shares of Manulife. The increased dividend is payable on and after Mar 19, 2024, to shareholders of record at the close of business on Feb 28, 2024.
MFC currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 10%. The Zacks Consensus Estimate for MFC’s 2024 earnings has increased 2.3% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hawkins: The company distributes, blends and manufactures bulk and specialty chemicals and other health and nutrition products for its customers in a wide variety of industries. On Mar 11, 2024, Hawkins completed the acquisition of Industrial Research Corporation, which distributes water treatment chemicals and equipment for customers in central to northern Louisiana, eastern Texas and southern Arkansas.
HWKN currently carries a Zacks Rank #2. The company has a four-quarter average earnings surprise of 30.56%. The Zacks Consensus Estimate for HWKN’s fiscal 2024 earnings indicates an improvement of 26.2% from the 2023 reported figure.
Americold Realty Trust: It is a real estate investment trust that owns and operates temperature-controlled warehouses. On Feb 22, 2024, the company announced its fourth-quarter and full-year 2023 results. Its NOI grew 7.9% on a constant currency basis, driven by a global warehouse same-store pool.
COLD currently carries a Zacks Rank #2. The company boasts a long-term earnings growth rate of 8.9%. The Zacks Consensus Estimate for COLD’s 2024 sales suggests a 6.3% 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
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Manulife Financial Corp (MFC) : Free Stock Analysis Report
Freshpet, Inc. (FRPT) : Free Stock Analysis Report
AptarGroup, Inc. (ATR) : Free Stock Analysis Report
Hawkins, Inc. (HWKN) : Free Stock Analysis Report
Americold Realty Trust Inc. (COLD) : Free Stock Analysis Report
