For Immediate Release
Chicago, IL – November 11, 2022 – Stocks in this week’s article are Arch Resources ARCH, Titan Machinery TITN, PBF Energy PBF, Valero Energy VLO and Axcelis Technologies ACLS.
5 Low-Leverage Stocks to Buy Amid Marketwide Skepticism
US stocks earlier this week, with investors being skeptical about election results and inflation pressure.
Against this backdrop, an investor might not feel encouraged to buy some stocks. However, a prudent investor knows that in times like this, one should choose stocks that provide sustainable returns. To this end, we recommend stocks like Arch Resources, Titan Machinery, PBF Energy, Valero Energy and Axcelis Technologieswhich bear low leverage and therefore can shield investors from incurring 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 exorbitant debt financing.
Therefore, 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.
Such an event shows how volatile the equity market can be at times and as an investor if you don’t want to lose big time, we suggest you invest in stocks, which 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 and the debt-to-equity ratio is one of the most common ratios.
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 cycle almost in 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 boom earnings picture might turn into a nightmare.
The Winning Strategy
Considering the aforementioned factors, 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.
Excluding stocks that have a negative or a zero debt-to-equity ratio, here we present our five picks out of the 22 stocks that made it through the screen.
Arch Resources: It is one of the largest coal producers in the United States, operating nine mines across the major coal basins of the country. In October 2022, the company released its third-quarter 2022 results. The company generated $454.1 million in cash provided by operating activities during the third quarter, increasing the total year to date to more than $1.0 billion
ARCH delivered an earnings surprise of 4.14%, on average, in the trailing four quarters. It carries a Zacks Rank #2 currently. The Zacks Consensus Estimate for 2022 earnings implies a 151.3% improvement from the 2021 reported figure.
Titan Machinery: It represents a diversified mix of agricultural, construction, and consumer products dealerships located in the upper Midwest. In August 2022, the company posted its fiscal 2023 second-quarter results. The company reported Q2 net sales of $496.5 million, representing growth of 31.5% year over year.
TITN currently sports a Zacks Rank #1. The company delivered an earnings surprise of 59.48% in the trailing four quarters, on average. The Zacks Consensus Estimate for 2022 earnings suggests a 30.9% improvement year over year.
PBF Energy: Through five oil refineries and associated infrastructure in the United States, the company provides end products that comprise heating oil, transportation fuels, lubricants and many related products. In October 2022, PBF Energy announced its third-quarter 2022 results. The company reported third-quarter 2022 net income of $1,084.2 million compared with a net income of $78.7 million for the third quarter 2021.
PBF carries a Zacks Rank #1 and delivered an earnings surprise of 48.97%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2022 earnings indicates a 960.8% improvement from the 2021 figure. You can see the complete list of today’s Zacks #1 Rank stocks here.
Valero Energy: It is the largest independent refiner and marketer of petroleum products in the United States. In October, Valero Energy reported its third-quarter results. Valero ended the third quarter of 2022 with $9.6 billion of total debt, $1.9 billion of finance lease obligations and $4.0 billion of cash and cash equivalents,
VLO currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 25.15%, on average. The Zacks Consensus Estimate for 2022 earnings suggests an 888.4% improvement from the 2021 reported figure.
Axcelis Technologies: It is a leading producer of ion implantation equipment used in the fabrication of semiconductors. In November 2022, the company announced its third-quarter results. Axcelis reported revenues worth $229.2 million compared with $221.2 million in the third quarter of 2021.
ACLS currently carries a Zacks Rank #2. It delivered a four-quarter earnings surprise of 23.21%, on average. The Zacks Consensus Estimate for 2022 earnings suggests a 66.7% improvement from the 2021 reported figure.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2016578/5-low-leverage-stocks-to-buy-amid-market-wide-skepticism
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Valero Energy Corporation (VLO) : Free Stock Analysis Report
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Arch Resources Inc. (ARCH) : Free Stock Analysis Report
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