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5 Low-Leverage Stocks to Buy After Unfavorable Consumer Price Data
Aparajita Dutta
7 min read

In This Article:

The majority of U.S. stock indices ended in the red on Nov. 28, following an unfavorable inflation data release, reflecting an uptick in the nation’s monthly consumer price.

In such a situation, an investor might not feel confident enough to invest 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 Fox Corp. FOX, Coastal Financial CCB, NVIDIA Corporation NVDA, Freshpet Inc. FRPT and InterDigital IDCC. 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.

With the third-quarter earnings season behind 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.

The Winning Strategy

Considering the factors above, it is prudent to choose stocks with a low debt-to-equity ratio to ensure steady returns.

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