All three major U.S. stock indices ended last week on a dismal note. Wall Street tumbled sharply on Friday, caused by a tech-led sell-off after disappointing quarterly figures from major tech giants like Intel and Amazon.
Elevated interest rates and hawkish monetary policies adopted by central banks likely added to the cautious market sentiment.
Against this backdrop, risk-averse investors concerned about high-beta swings would like to pivot toward low-leverage companies that offer a more defensive strategy.
These financially disciplined companies maintain strong balance sheets and low debt levels, positioning them to better withstand interest rate fluctuations and economic challenges. By containing financial risk while generating consistent cash flows, low-leverage stalwarts provide a durable foundation for your portfolio and an effective hedge against energy-driven downturns.
Hence, we recommend low-leverage stocks, such as HF Sinclair DINO, Comfort Systems USA FIX, Ganesco GCO, ExxonMobil Holdings Corporation XOM, and Vince Holding VNCE.
Before selecting low-leverage stocks, it is important to understand what leverage is and how investing in low-leverage companies can benefit investors.
What’s the Significance of Low-Leverage Stocks?
In finance, leverage refers to the use of borrowed capital to support business operations and drive expansion. Companies typically raise such funds through debt financing, although equity financing remains an alternative. However, firms often prefer debt due to its relatively lower cost and easier availability compared to issuing equity.
Debt financing comes with inherent risks and is beneficial only when it generates returns that exceed the cost of borrowing. To limit downside risk, investors should be cautious of companies that rely excessively on debt. Prudent investing involves selecting businesses with manageable leverage, as completely debt-free companies are rare.
The equity market can be volatile at times. As an investor, if you want to avoid significant losses, we suggest focusing on stocks with low leverage, which are generally deemed less risky.
To identify such stocks, several leverage ratios have historically been developed to measure the amount of debt a company carries. The debt-to-equity ratio is among the most widely used financial 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 suggests improved solvency for a company.
With the third-quarter 2026 earnings season in full swing, investors should focus on stocks that have demonstrated solid earnings growth in recent periods.
If a stock carries a high debt-to-equity ratio during an economic downturn, its seemingly strong earnings could quickly turn into a nightmare.
The Winning Strategy
Considering the aforementioned factors, it would be 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 select stocks with the potential to provide steady returns, we have expanded our screening criteria to include additional factors.
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 $10 or higher.
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 expectations.
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 zero debt-to-equity ratio, we present our five picks out of the 31 that made it through the screen.
HF Sinclair: It is an independent energy company producing and marketing gasoline, diesel, jet fuel, renewable diesel, lubricants and specialty products. On Oct. 28, 2026, the company reported its third-quarter 2026 results. The company’s sales and other revenues increased 50% year over year to $10.9 million, while earnings per share surged 429%.
The Zacks Consensus Estimate for DINO’s 2026 revenues indicates an improvement of 31.7% from the prior-year reported level. The stock boasts a four-quarter average earnings surprise of 199.38%. It currently sports a Zacks Rank #1.
Comfort Systems USA: It designs, builds, installs, maintains, repairs and replaces mechanical, electrical and plumbing systems, including HVAC, piping and controls, electrical systems, off-site construction, monitoring and fire protection. On Oct. 22, 2026, Comfort Systems announced that its board of directors has hiked its quarterly dividend by 10 cents to $1.00 per share. The dividend is payable on Nov. 23, 2026, to stockholders of record at the close of business on Nov. 12, 2026.
The Zacks Consensus Estimate for FIX’s 2026 revenues indicates an improvement of 48.6% from the prior-year reported actuals. The Zacks Consensus Estimate for FIX’s 2026 earnings calls for an improvement of 73.8% from the prior-year figure. It sports a Zacks Rank of 1.
Ganesco: It is a specialty retail and branded company, which sells footwear and accessories in retail stores. On Sept. 15, 2026, Ganesco announced the launch of its Wrangler footwear collection, marking a milestone in its multiyear licensing agreement with Kontoor Brands and its legendary denim and lifestyle brand.
The Zacks Consensus Estimate for GCO’s fiscal 2027 earnings indicates an improvement of 62.1% from the prior-year reported number. The stock currently boasts a four-quarter average earnings surprise of 11.16% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
ExxonMobil: It engages in the exploration and production of crude oil and natural gas. On Oct. 30, 2026, the company announced third-quarter 2026 results. Its adjusted earnings per share improved 125% year over year to $4.23, while its revenues increased 32.7% to $113.16 billion.
The Zacks Consensus Estimate for XOM’s 2026 revenues indicates an improvement of 25.5% from the prior-year reported actuals. The stock boasts a long-term (three-to-five years) earnings growth rate of 14.60%. It currently sports a Zacks Rank #1.
Vince Holdings: It offers a broad range of women's and men's ready-to-wear apparel, including its signature cashmere sweaters, leather jackets, luxe leggings, dresses, silk and woven tops, denim and footwear. On Sept. 10, 2026, the company announced second-quarter fiscal 2026 results. Its net sales increased 11.7% year over year to $81.8 million, while adjusted net income improved a solid 175.5% to $13.5 million.
The Zacks Consensus Estimate for VNCE’s fiscal 2026 revenues indicates an improvement of 14% from the prior-year reported actuals. The Zacks Consensus Estimate for VNCE’s fiscal 2026 earnings implies a solid surge of 175% from the prior-year reported figures. The stock currently sports a Zacks Rank #1.
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ExxonMobil Holdings Corporation (XOM): Free Stock Analysis Report
Genesco Inc. (GCO): Free Stock Analysis Report
Comfort Systems USA, Inc. (FIX): Free Stock Analysis Report
Vince Holding Corp. (VNCE): Free Stock Analysis Report
HF Sinclair Corporation (DINO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).