It has not been a good time for the stock market, especially after the particularly tumultuous last week, for most global indices. In about eight months, the S&P 500 has declined 3.4%. Indeed, 2015 hasn’t, so far, been a breakout year for the stocks and clearly, investors had enough reason to be cautious.
 
Earlier in August, China devalued its currency. The country’s stock market has turned bearish over the last couple of months despite government initiatives to check the fall. The Shanghai composite index went down 0.8% on Aug 28, as investors were concerned that the government may not want to prop up the stock markets any further.

Apart from this, weak crude prices and significant trouble in other major global economies, including the Eurozone, Russia and Japan, remain the concerns. Moreover, dismal performance by the Nasdaq (down 5% in the past month) as well as the Dow Jones (down 6%) added to investors’ worries. As a result, many are doubtful about their investment options.

Nevertheless, investors have something to look forward to as the domestic market picks up momentum. The housing starts touched an eight-year high of 1.21 million in Jul 2015, while unemployment rate remained at roughly 5%. Additionally, the auto industry is booming, while several other sectors, particularly finance, are likely to gain from an anticipated rise in benchmark interest rates by the end of 2015.

History has shown that value stocks tend to appreciate over time, while experiencing less volatility than growth stocks. Now, though the returns might not be as high as the growth stocks, avoiding related risks may very well be worth it as stocks trading at higher multiples tend to be more stable.

Why Low Debt Is Beneficial

Companies with less debt on their books are not affected as much as the firms carrying a heavy debt burden when the economy turns sour. Lower debt positions the former to tackle the situation and remain afloat even during turbulent times.

Debt-free companies are financially much healthier when interest rates are high. As their cash outflow in the form of interest payment is limited, these firms are able to keep their costs to a minimum and have little exposure to interest rate risk as they are insulated from any rise in borrowing costs.

Low interest payment outflow also leaves more cash on hand for the company. Depending on its growth prospects, the firm can utilize the surplus cash at its discretion. Management can either spend the amount on viable business opportunities to create value for shareholders, or distribute it through dividends. Either way, investors stand to gain.
 
4 Low Debt Value Stocks

We have selected 4 low debt value stocks with Value Scores of “A.” They all carry a debt-equity ratio of less than 0.1. Each of these stocks also has a Zacks Rank #1 (Strong Buy) or #2 (Buy).  

All the stocks listed below have been selected with the help of Zacks stock screener and our new style score system. This system helps you choose stocks with bright prospects, and their attractive valuations serve as the perfect opportunity for investors to cash in on anticipated growth.

Please note that the Zacks Style Score for value takes into account all valuation metrics to give us an actionable metric that helps identify stocks truly trading at a discount to intrinsic value. Back-tested results show that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) handily beat other stocks.

Cal-Maine Foods, Inc. (CALM - Snapshot Report) is engaged in the production, cleaning, grading and packaging of fresh shell eggs sold to shell egg retailers. The Mississippi-based company is one of the largest producers and distributors of fresh shell eggs in the U.S.

Zacks Rank: #2

Debt-Equity Ratio: 0.06 versus the industry average of 0.46.

K12, Inc. (LRN - Snapshot Report), a technology-based education company, is a leading national provider of proprietary curriculum and educational services online to students in kindergarten through the 12th grade.

Zacks Rank: #2

Debt-Equity Ratio: 0.02 on par with the industry average.

National Interstate Corporation (NATL - Snapshot Report) is a specialty property and casualty insurance company with a niche orientation and focus on the transportation industry. The company’s core products include property and casualty insurance for transportation companies, group captive insurance programs for transportation companies (which it refers to as alternative risk transfer operations), specialty personal lines, primarily, recreational vehicle coverage and general commercial insurance in Hawaii.

Zacks Rank: #2

Debt-Equity Ratio: 0.03 as against the industry average of 0.46.

Triumph Bancorp, Inc. (TBK - Snapshot Report) is a financial holding company with a diversified line of community banking, commercial finance and asset management activities. It serves the local communities through its two wholly owned bank subsidiaries — Triumph Savings Bank, SSB and Triumph Community Bank, N.A. These operations include a full suite of lending and depository products and services catering to customers in its community banking markets.

Zacks Rank: #2

Debt-Equity Ratio: 0.10 versus the industry average of 0.34.

Bottom Line

Value investing is probably the most predictable investment style in the current volatile market scenario, apart from being the safest. Clearly, prospects for U.S. economy appear bright, and investing in domestic stocks may prove to be a wise decision. Moreover, the current fall in indexes is likely to be a good entry point for investors to put money in value stocks with strong fundamentals.