Zacks
Zacks.com featured highlights: Extended Stay America, Walgreens Boots Alliance, Barnes & Noble, Universal Health Services and Greif
Zacks Equity Research
Updated

For Immediate Release

Chicago, IL – January 23, 2017 - Stocks in this week’s article include Extended Stay America, Inc. (NYSE: STAY - Free Report ), Walgreens Boots Alliance, Inc. (NASDAQ: WBA - Free Report ), Barnes & Noble, Inc. (NYSE: BKS - Free Report ), Universal Health Services, Inc. (NYSE: UHS - Free Report ) and Greif, Inc. (NYSE: GEF - Free Report ).

Screen of the Week of Zacks Investment Research:

Buy These 5 Low-Leverage Stocks to Be Safe

With Donald Trump set to be sworn in as the U.S. president today, there is a lot of uncertainty in the global markets. Many analysts remain skeptical as to how this real-estate mogul’s new economic policies will affect the nation in the future. And uncertainty is never good for the stock markets.

In addition to this, mounting U.S. debt and rising deficits have made it all the more difficult for investors to determine whether it’s safe to pour money in U.S. stocks. With capital being one of the basic factors of production, only a few fortunate can escape from the realm of debt. The word “debt” is unnerving for many.

This is because too much debt can be detrimental as companies with large debt loads are more vulnerable during economic downturns and can even go bankrupt in the worst case scenario. Of course, this does not mean that debt financing, which is an inherent instrument for corporations to grow their earnings, should be a taboo in corporate financing.

Nevertheless, considering the fact that debt ridden companies are more vulnerable at times of volatility, it is safe to avoid those for achieving optimal returns.

And here comes the importance of leverage, which indicates the level of debt a corporation carries at present. Empirically several leverage ratios have been constructed to measure the exact amount of debt risk a company bears in order to safeguard investors from debt traps.

Debt-to-equity ratio is one such measure, perhaps the most popular one, which is widely used to evaluate a company’s credit worthiness, for potential equity investments.

What’s Debt-to-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 implies a more financially stable business, thereby making it a more worthy investment opportunity.

With the fourth–quarter earnings season set to pick up pace by next week, investors must be gearing up to put their money in stocks exhibiting a surge in earnings. But if the stocks bear a high debt-to-equity ratio, in times of economic downturns, their so-called booming earnings picture might turn into a nightmare.

Terms and Privacy Policy
Your Privacy Choices
Utah Privacy Notice
More Info

Recommended Stories