The majority of the U.S. stock indices ended the last day of 2024 on a dismal note, with a slight drop. The sluggishness witnessed on Wall Street was primarily due to large-cap technology stocks, which tumbled on Dec. 31.
In such a situation, investors might not feel encouraged to invest in stocks. However, as we enter 2025, Wall Street analysts have a bullish outlook for the stock market this year, which should work in favor of equity investors. So, what a prudent investor can do is purchase safe-bet stocks like Fox Corp. FOX, Natwest Group NWG, AptarGroup Inc. ATR, Johnson & Johnson JNJ and REV Group REVG. These stocks bear low leverage and, therefore, should be a safer option for investors if they don’t want to lose big in times of market turmoil.
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.
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 2024 earnings season ahead of 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.
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.
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 14 stocks that made it through the screen.
FOX: It produces and distributes news, sports and entertainment content. On Nov. 4, 2024, Fox Corp. released its first-quarter fiscal 2025 results. The company reported revenues of $3.56 billion, which reflected an increase of 11% year over year. Adjusted earnings per share rose 33%.
The company boasts a long-term (three-to-five years) earnings growth rate of 7.1%. The Zacks Consensus Estimate for FOX’s fiscal 2025 sales suggests a 6.7% improvement from the fiscal 2024 actuals. It currently has a Zacks Rank #2.
Natwest Group: It operates as a banking and financial services company. On Dec. 4, 2024, Natwest Group announced that it is set to launch its first Fintech Growth Programme, an exciting opportunity for fintech startups to use the resources, expertise and networks of an established high-street bank to help them scale up sustainably.
The Zacks Consensus Estimate for NWG’s 2025 earnings suggests a 4.7% improvement from the 2024 estimated number. The Zacks Consensus Estimate for its 2025 sales suggests a 6.3% improvement from the 2024 expected number. It currently sports a Zacks Rank #1.
Aptar Group: It 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 Dec. 19, 2024, Aptar announced the signing of a Power Purchase Agreement (PPA) with Nadara for the output of three agrivoltaic solar farms in Sicily, Italy – Landolina, Sughero Torto and Sardella. This energy strategy, in addition to creating environmental benefits, provides a more localized source of renewable energy dedicated to Aptar.
It delivered a long-term earnings growth rate of 10.80%. The Zacks Consensus Estimate for ATR’s 2025 sales implies an improvement of 5.1% from the 2024 estimated number. It currently holds a Zacks Rank #2.
Johnson & Johnson: It is a well-known pharmaceutical company. On Dec. 30, 2024, the company announced that the European Commission has approved a Type II variation extension of indication for RYBREVANT, in combination with LAZCLUZE, for the first-line treatment of adult patients with advanced non-small cell lung cancer (NSCLC) with epidermal growth factor receptor (EGFR) exon 19 deletions (ex19del) or exon 21 L858R substitution mutations.
It delivered a four-quarter average earnings surprise of 4.15%. The Zacks Consensus Estimate for JNJ’s 2025 sales implies an improvement of 2.7% from the 2024 estimated number. It currently holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
REV Group: It designs, manufactures and distributes specialty vehicles and related aftermarket parts and services. On Dec. 11, 2024, REV Group announced its fourth-quarter and full-year fiscal 2024 results. The company’s fiscal fourth-quarter net income came in at 80 cents per share, up from 50 cents recorded in the year-ago period. REV also increased its quarterly cash dividend by 20%.
It delivered a four-quarter average earnings surprise of 57.04%. The Zacks Consensus Estimate for REVG’s fiscal 2025 sales implies an improvement of 7.6% from the fiscal 2024 actuals. It currently sports a Zacks Rank #1.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your trading. Further, you can also create your strategies and backtest them first before taking the investment plunge.
The Research Wizard is a great place to begin. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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:
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
AptarGroup, Inc. (ATR) : Free Stock Analysis Report
Fox Corporation (FOX) : Free Stock Analysis Report
REV Group, Inc. (REVG) : Free Stock Analysis Report
NatWest Group plc (NWG) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
