Bet on These 5 Low Leverage Stocks to Avoid Losses

Core Viewpoint - Major U.S. stocks experienced a slight decline on May 16 after reaching record highs, as investor enthusiasm around interest rate cuts and slowing inflation waned [1] Group 1: Investment Recommendations - Recommended stocks include Vital Farms (VITL), Pathward Financial (CASH), Atmos Energy (ATO), Sprouts Farmers Market (SFM), and Hamilton Insurance Group (HG), all characterized by low leverage [1] - Low-leverage stocks are suggested as a strategy to protect investors from significant losses during economic downturns [2] Group 2: Understanding Leverage - Leverage refers to the practice of companies borrowing capital to operate and expand, typically through debt financing [1] - Excessive debt financing can lead to considerable losses, making it crucial for investors to avoid companies with high debt levels [2] Group 3: Debt-to-Equity Ratio Analysis - The debt-to-equity ratio is a key metric indicating a company's financial risk, with lower ratios reflecting better solvency [3] - High debt-to-equity ratios can turn positive earnings into negative outcomes during economic downturns [3] Group 4: Stock Selection Strategy - A prudent investment strategy involves selecting stocks with low debt-to-equity ratios to ensure steady returns [4] - Additional screening criteria include being less leveraged than industry peers, trading at a minimum price of $10, and having substantial trading volume [5] Group 5: Performance Metrics - Stocks should exhibit earnings growth greater than the industry median, a VGM Score of A or B, and a Zacks Rank of 1 (Strong Buy) or 2 (Buy) for optimal upside potential [6] - Excluding stocks with negative or zero debt-to-equity ratios, five stocks have been identified as potential investments [6] Group 6: Company Highlights - Vital Farms (VITL): Reported a 24.1% year-over-year increase in net revenues to $147.9 million and a 168.8% rise in earnings per share to 43 cents, with a Zacks Rank of 1 [7] - Pathward Financial (CASH): Announced an expansion of its offerings for financial institutions, with a Zacks Rank of 2 and a projected 6.5% sales improvement for 2024 [8] - Atmos Energy (ATO): Reported earnings per share of $4.93, up from $4.40 year-over-year, with a long-term earnings growth rate of 7% and a Zacks Rank of 2 [9] - Sprouts Farmers Market (SFM): Achieved a 9% year-over-year increase in net sales, with a long-term earnings growth rate of 9% and a Zacks Rank of 1 [9] - Hamilton Insurance (HG): Experienced a 35.7% year-over-year increase in net premiums earned, with a Zacks Rank of 1 and a projected 41.5% sales improvement for 2024 [10]