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Invest in These 6 Liquid Stocks to Derive Solid Returns
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Healthy liquidity positions help a company to witness strong business growth and yield encouraging returns. Liquidity helps to judge a company’s ability to meet its debt obligations.
However, high liquidity may not always indicate that the company is financially strong. It may also mean that the company is running its business inefficiently. Hence, one should give precedence to a company’s efficiency level in addition to its liquidity position. Investing in favorably liquid company with impressive efficiency level may provide strong returns.
How to Measure Liquidity?
Liquidity ratios – current, quick and cash ratios – are considered popular indicators of liquidity levels. Favorable liquidity ratios may help an investor to identify a company’s capability of converting its assets to meet its debt obligations. While current ratio or working capital ratio seeks to measure a company’s proficiency in meeting short- as well as long-term debt obligation, quick ratio or acid-test ratio or quick assets ratio indicates its capability of clearing only its short-term debt obligations. This is why current ratio takes current assets relative to current liabilities into consideration, while quick ratio accounts for current assets excluding inventory to current liabilities.
On the other hand, the most conservative of the liquidity ratios, cash ratio aims to measure a company’s potential to pay its current debt obligations by converting its most liquid assets. In order to achieve its objective, cash ratio only considers cash and cash equivalents relative to current liabilities. Though a higher value of these ratios may indicate that the company is in a sound financial position, significantly high values may signal that it is utilizing its assets inefficiently. Hence, companies with liquidity ratios between 1 and 3 are considered to have favorable liquid levels.
Screening Parameters
Apart from considering ideal ranges of liquidity ratios, we have added asset utilization in our screening parameters with an objective to pick efficient stocks only. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. It is considered one of the most popular means of identifying efficient companies.
In order to make our strategy more profitable, we have added our proprietary Growth Style Score to the screen with an objective to ensure that these liquid and efficient stocks have solid growth potential too.
Current Ratio, Quick Ratio and Cash Ratio between 1 and 3 (While liquidity ratios of greater than 1 are desirable, significantly high ratios may indicate inefficiency.)
Asset utilization greater than industry average (Higher asset utilization than the industry average indicates a company’s efficiency.)
Zacks Rank equal to #1 (Only Strong Buy rated stocks can get through.)
Growth Style Score less than or equal to B
(Back-tested results show that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 handily beat other stocks.)
Just these few criteria have narrowed down the universe of over 7,700stocks to only 6.
Here are the stocks that made it through the screen:
WellCare Health Plans, Inc. provides managed care services targeted exclusively at government-sponsored healthcare programs, focusing on Medicaid and Medicare. WellCare Health Plans has an average four-quarter positive earnings surprise of nearly 24.8%.
NVIDIA Corporation (NVDA - Free Report) designs, develops and markets a top-to-bottom family of award-winning 3D graphics processors, graphics processing units and related software. The company has an average four-quarter positive earnings surprise of nearly 57.9%.
Bruker Corporation (BRKR - Free Report) is engaged in designing and production of scientific instruments and providing solutions related to analytical system. Bruker has an average four-quarter positive earnings surprise of 37.2%.
Trupanion, Inc. (TRUP - Free Report) operates as a direct-to-consumer monthly subscription service provider of a medical insurance plan for cats and dogs. Trupanion has an average four-quarter positive earnings surprise of 15%.
Masimo Corporation (MASI - Free Report) develops innovative monitoring technologies that significantly improve patient care -- helping solve unsolvable problems. Masimo’s current year earnings per share (EPS) growth rate is 32.9%, higher than the industry average of 13.5%.
Laredo Petroleum, Inc. is engaged in the exploration, development and acquisition of oil and natural gas properties. Laredo Petroleum has a current year EPS growth rate of 78%, higher than the industry average of 11.6%.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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Invest in These 6 Liquid Stocks to Derive Solid Returns
Healthy liquidity positions help a company to witness strong business growth and yield encouraging returns. Liquidity helps to judge a company’s ability to meet its debt obligations.
However, high liquidity may not always indicate that the company is financially strong. It may also mean that the company is running its business inefficiently. Hence, one should give precedence to a company’s efficiency level in addition to its liquidity position. Investing in favorably liquid company with impressive efficiency level may provide strong returns.
How to Measure Liquidity?
Liquidity ratios – current, quick and cash ratios – are considered popular indicators of liquidity levels. Favorable liquidity ratios may help an investor to identify a company’s capability of converting its assets to meet its debt obligations. While current ratio or working capital ratio seeks to measure a company’s proficiency in meeting short- as well as long-term debt obligation, quick ratio or acid-test ratio or quick assets ratio indicates its capability of clearing only its short-term debt obligations. This is why current ratio takes current assets relative to current liabilities into consideration, while quick ratio accounts for current assets excluding inventory to current liabilities.
On the other hand, the most conservative of the liquidity ratios, cash ratio aims to measure a company’s potential to pay its current debt obligations by converting its most liquid assets. In order to achieve its objective, cash ratio only considers cash and cash equivalents relative to current liabilities. Though a higher value of these ratios may indicate that the company is in a sound financial position, significantly high values may signal that it is utilizing its assets inefficiently. Hence, companies with liquidity ratios between 1 and 3 are considered to have favorable liquid levels.
Screening Parameters
Apart from considering ideal ranges of liquidity ratios, we have added asset utilization in our screening parameters with an objective to pick efficient stocks only. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. It is considered one of the most popular means of identifying efficient companies.
In order to make our strategy more profitable, we have added our proprietary Growth Style Score to the screen with an objective to ensure that these liquid and efficient stocks have solid growth potential too.
Current Ratio, Quick Ratio and Cash Ratio between 1 and 3
(While liquidity ratios of greater than 1 are desirable, significantly high ratios may indicate inefficiency.)
Asset utilization greater than industry average
(Higher asset utilization than the industry average indicates a company’s efficiency.)
Zacks Rank equal to #1
(Only Strong Buy rated stocks can get through.)
Growth Style Score less than or equal to B
(Back-tested results show that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 handily beat other stocks.)
Just these few criteria have narrowed down the universe of over 7,700stocks to only 6.
Here are the stocks that made it through the screen:
WellCare Health Plans, Inc. provides managed care services targeted exclusively at government-sponsored healthcare programs, focusing on Medicaid and Medicare. WellCare Health Plans has an average four-quarter positive earnings surprise of nearly 24.8%.
NVIDIA Corporation (NVDA - Free Report) designs, develops and markets a top-to-bottom family of award-winning 3D graphics processors, graphics processing units and related software. The company has an average four-quarter positive earnings surprise of nearly 57.9%.
Bruker Corporation (BRKR - Free Report) is engaged in designing and production of scientific instruments and providing solutions related to analytical system. Bruker has an average four-quarter positive earnings surprise of 37.2%.
Trupanion, Inc. (TRUP - Free Report) operates as a direct-to-consumer monthly subscription service provider of a medical insurance plan for cats and dogs. Trupanion has an average four-quarter positive earnings surprise of 15%.
Masimo Corporation (MASI - Free Report) develops innovative monitoring technologies that significantly improve patient care -- helping solve unsolvable problems. Masimo’s current year earnings per share (EPS) growth rate is 32.9%, higher than the industry average of 13.5%.
Laredo Petroleum, Inc. is engaged in the exploration, development and acquisition of oil and natural gas properties. Laredo Petroleum has a current year EPS growth rate of 78%, higher than the industry average of 11.6%.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »