Buy These 5 Low-Leverage Stocks to Counter Market Volatility

All three major stock indices of Wall Street ended in the green on April 24, primarily boosted by better-than-expected earnings anticipation from a handful of tech biggies, including Alphabet and Intel. This came as a momentary relief for investors, considering that U.S. President Trump’s tariff announcements had created quite a stir in the global stock market in recent weeks. 

The general market consensus is that investors still expect volatility to prevail on Wall Street, which makes them extra cautious while choosing stocks. And a cautious investor should always choose safe bets like Bilibili BILI, Kingstone Companies KINS, Engie S.A. ENGIY, ASML Holding ASML and Resmed RMD. 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 first-quarter 2025 earnings season in full swing, 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.

Yet, an investment strategy based solely on the debt-to-equity ratio might not fetch the desired outcome. To choose stocks that have the potential to give you steady returns, we have expanded our screening criteria to include some other factors.

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.

VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best upside potential.

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

Zacks Rank #1 or 2: Irrespective of market conditions, stocks with a Zacks Rank #1 or 2 have a proven history of success.

Excluding stocks that have a negative or a zero debt-to-equity ratio, here we present our five picks out of the 13 stocks that made it through the screen.

Bilibili: It provides an online entertainment platform primarily in China. On April 9, 2025, Bilibili published its 2024 Environmental, Social and Governance ("ESG") report. Per the report, daily active users approached 104 million, each averaging 102 minutes of daily time spent on the platform, in 2024.

The Zacks Consensus Estimate for BILI’s 2025 sales suggests an improvement of 11% from the 2024 reported figure. The company boasts a four-quarter average earnings surprise of 2.23%. It currently has a Zacks Rank #2.

Kingstone Companies: It is a property and casualty insurance holding company, which focuses on automobile, motorcycle and homeowners insurance. On April 14, 2025, Kingstone announced that its subsidiary, Kingstone Insurance Company, has signed an agreement to provide replacement policies to selected Homeowners policyholders in Downstate New York. This move comes as AmGUARD Insurance Company shifts its focus away from the admitted personal lines business. The agreement involves roughly $70 million in written premiums. This agreement positions Kingstone to expand its footprint in the Downstate New York homeowners market

The Zacks Consensus Estimate for its 2025 sales suggests a year-over-year improvement of 37.9%. The Zacks Consensus Estimate for its 2025 earnings suggests a year-over-year improvement of 31%. It currently sports a Zacks Rank #1.

Engie: It designs, builds and operates major gas and electricity infrastructure and uses the same to supply energy. On March 14, 2025, Engie and the Belgian government closed an agreement covering the 10-year extension of the Tihange 3 and Doel 4 nuclear reactors and the transfer of responsibility related to nuclear waste. As a result of the transfer of all nuclear waste liabilities to the Belgian government, ENGIY will no longer be exposed to the future costs related to the treatment of waste.

The Zacks Consensus Estimate for its 2025 earnings indicates an improvement of 19.6% from the 2024 actual. It currently sports a Zacks Rank #1.

ASML Holdings: It is a leading manufacturer of advanced technology systems for the semiconductor industry. On April 16, 2025, ASML released its first-quarter 2025 results. Its net sales improved 46.3% year over year, while its earnings per share surged 92.9%. 

ASML boasts a long-term earnings growth rate of 18.9%. The Zacks Consensus Estimate for its 2025 sales suggests a year-over-year improvement of 21.5%. It currently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Resmed: It holds a major position as a designer, manufacturer, and distributor in the worldwide market for generators, masks, and related accessories for the treatment of sleep-disordered breathing and other respiratory disorders. On April 23, 2025, Resmed announced its third-quarter fiscal 2025 results. Its revenues improved 8% year over year, while adjusted net income surged 13%. 

RMD boasts a long-term earnings growth rate of 14.7%. The Zacks Consensus Estimate for its fiscal 2025 sales suggests a year-over-year improvement of 9%. It currently carries a Zacks Rank #2.

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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: https://www.zacks.com/performance.
 

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