Zacks
5 Low-Leverage Stocks to Add to Your Portfolio as U.S. Inflation Eases
Aparajita Dutta
7 min read

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The majority of U.S. stock indices ended last week on a strong note, witnessing a sharp rise on April 11, 2025, as investors’ concerns surrounding the freshly erupted U.S.-China trade war eased somewhat. Producer price data released last Friday, which showed that wholesale inflation fell in March, must have also added to investors’ optimism and was reflected in the form of share price hikes.

This might attract investors to the stock market. However, considering the fact that the global stock market has seen major ups and downs in recent times, a prudent investor knows that to avoid big losses during a crisis, one should choose safe bet stocks like Bilibili BILI, Willdan Group WLDN, Sterling Infrastructure STRL, ASML Holding ASML and Leonardo DRS DRS. 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 knocking on the doors, 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.

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