Bet on These 5 Low Leverage Stocks for Safe Returns

From day one of attaining control over the Oval office, President Trump has been facing huge flak owing to his impromptu decisions. While the whole world is protesting Trump's immigration ban, the White House is planning to bombard yet another proposal.

This time, Trump aims at bringing "financial deregulation" in the U.S. with the intention of lifting the Dodd-Frank Act that restricted banks from investing heavily in risky investments like private equity. While a few analysts have welcomed this decision with open arms, there remains every possibility that deregulation might shake the financial market stability. And this would affect not only the U.S., but also the global stock market.

With uncertainty looming large, investors might turn their attention to fixed-income assets instead of investing in stocks. Nevertheless, this should not discourage stockholders. What is needed now is prudent investing.

Considering the fact that in the uncertain world of investment, markets can trip any time. To prevent yourself from stumbling, invest in low leverage companies. This is because debt-ridden companies are prone to bankruptcy in times of financial crisis.

Naturally, investors will now be eager to know how much leverage a company currently bears to choose those with a low amount of debt. Several leverage ratios have been constructed so far for this purpose, the most common one being the debt-to-equity ratio.

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 for investment.

With the fourth-quarter earnings season in full swing, investors must be eyeing companies with solid earnings growth. However, blindly pursuing high earnings yielding stocks might drain all your money before you know, if the stock bears a high debt-to-equity ratio.

This is because a high debt-to-equity ratio indicates a huge level of repayment that the company has to make in connection with the large debt amount, which had once exploded its earnings. This in reality makes the company's so-called solid earnings highly volatile.

Choosing a Winning Strategy

Considering the above discussion, it is imperative that a sensible investor chooses stocks bearing low debt-to-equity ratios. However, choosing stocks based solely on one financial metric might not fetch the desired outcome.

To ensure maximum possible returns from this strategy, we have expanded our screening procedure to include some other criteria.

Here are the other parameters:

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.

Estimated One-Year EPS Growth F(1)/F(0) greater than 5: This shows earnings growth expectation.

Zacks Rank #1 (Strong Buy) or #2 (Buy): No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 or 2 have a proven history of success.

VGMScore of A or B: Our research shows that stocks with a VGM Score of 'A' or 'B' when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Excluding stocks that have a negative or a zero debt-to-equity ratio, here are five of the final 21 stocks that made it through the screen.

Gibraltar Industries, Inc.ROCK : This companymanufactures and distributes building products in North America, Europe, and Asia. It carries a Zacks Rank #1 and witnessed an average positive earnings surprise of 67.30% in the trailing four quarters.

Modine Manufacturing CompanyMOD : It develops, manufactures and markets heat exchangers and systems for use in on-highway and off-highway original equipment manufacturer (OEM) vehicular applications. The company currently carries a Zacks Rank #1 and its earnings estimate for the current quarter improved by a penny in the last 60 days.

Imperial Oil LimitedIMO : This company explores, produces and sells crude oil and natural gas in Canada. Imperial Oil witnessed a positive earnings surprise of 31.47% on average in the trailing four quarters. It carries a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Universal Health Services, Inc.UHS: This companyowns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. It carries a Zacks Rank #2 and witnessed a positive earnings surprise of 0.28% onaverage in the trailing four quarters.

Dominion Midstream Partners, LPDM : This companyowns liquefied natural gas import, storage, regasification and transportation assets. It carries a Zacks Rank #1 and witnessed a positive earnings surprise of 8.24% last quarter.

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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:

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Modine Manufacturing Company (MOD): Free Stock Analysis Report

Universal Health Services, Inc. (UHS): Free Stock Analysis Report

Imperial Oil Limited (IMO): Free Stock Analysis Report

Dominion Midstream Partners, LP (DM): Free Stock Analysis Report

Gibraltar Industries, Inc. (ROCK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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