VITL - 5 Low-Leverage Stocks to Buy Amid U.S.-China Trade Tension | Benzinga
Major stock indices in the United States ended lower on Jul 17, 2024, pulled down by microchip stocks' decline. Notably, microchip stocks sank following news reports that the Biden administration might impose severe trade restrictions against China in a bid to contain the availability of semiconductor technology to the latter.
Against this backdrop, stock market players might not feel confident in making investments as trade tensions between these two economic giants sometimes result in global market imbalance. However, a prudent investor knows that one can buy stocks that are safe bets in periods of market decline. To this end, we recommend stocks like Vital Farms (NASDAQ: VITL), Donaldson (NYSE: DCI), Atmos Energy (NYSE: ATO), First Solar (NASDAQ: FSLR) and Skechers (NYSE: SKX) that have low leverage. Choosing them can shield investors from incurring huge losses in times of crisis.
Now, before selecting low-leverage stocks, let's explore what leverage is and how choosing a low-leverage stock helps investors.
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 ...