Low Debt Stocks

During economic downturns, heavily indebted companies face a dangerous cycle: revenues fall while interest payments remain fixed, squeezing margins and potentially triggering covenant violations. They may be forced to issue equity at depressed prices, cut dividends, or sell assets. Low-debt companies have opposite dynamics: they can maintain operations, continue investing, and even acquire distressed competitors at bargain prices. Studies show low-leverage stocks tend to decline less in bear markets and recover faster. This screen's maximum 1x debt-to-EBITDA threshold selects companies that could theoretically pay off all debt within one year's operating profit.

Debt-to-EBITDA measures how many years of operating earnings it would take to repay all debt. General guidelines: Under 1x is very conservative (this screen's threshold), 1-2x is low, 2-3x is moderate, 3-4x is elevated, above 4x is high-risk for most industries. However, context matters: Utilities typically operate at 3-5x, while REITs often run 4-6x or higher due to stable, predictable cash flows. Cyclical businesses (energy, materials) should maintain lower ratios to buffer commodity price swings. Tech companies with recurring revenue can often support more debt than one-time-sale businesses.

Not necessarily. Some debt can be beneficial: interest payments are tax-deductible (reducing effective cost), and debt financing avoids diluting existing shareholders. Companies with stable cash flows, like utilities, rationally use debt to optimize their capital structure. Zero debt might indicate management is being overly conservative, missing opportunities to accelerate growth. The key is appropriate leverage given business risk. This screen targets very low debt (under 1x) rather than zero debt, selecting for financial flexibility without requiring ultraconservative balance sheets that might indicate capital allocation inefficiency.

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Stock Scores are our proprietary 1-5 ratings across seven dimensions: Valuation, Growth, Profitability, Financial Health, Dividends, Management, and Analyst sentiment. Unlike one-size-fits-all systems that treat banks, tech stocks, and REITs the same way, our algorithms are calibrated per industry using metrics specific to each business type. Scores update in real-time as prices change and when new financial data arrives. Green (4-5) indicates strength, yellow (3) is neutral, red (1-2) signals caution. They're not trading signals; they help you quickly assess fundamental health across 100,000+ stocks. Learn more about Stock Scores →

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