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5 Low-Leverage Stocks to Buy as Inflation Data Entices Investors
Aparajita Dutta
7 min read

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The majority of U.S. stock indices bounced back to the green zone on Dec. 20, after suffering from heavy sell-offs in the earlier part of last week, as investors cheered lower-than-expected inflation data. Notably, America’s latest Personal Consumption Expenditures (PCE) index data showed price increases decelerating in November from October and were also lower than the market’s expectation.

In such a situation, an investor might rush to invest in the stock market. However, keeping in mind the volatile situation of the world economy lately, it is advisable to choose stocks that come with low leverage, thereby carrying less risk during periods of uncertainty. To this end, we recommend stocks like Fox Corp. FOX, Comfort Systems USA FIX, REV Group REVG, Freshpet Inc. FRPT and Sterling Infrastructure Inc. STRL. 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.

What’s the Significance of Low-Leverage Stocks?

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.

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