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Investors seeking impressive returns may allocate their assets in stocks with favorable liquidity positions. Liquidity indicates a company’s capability of meeting debt obligations by converting assets into liquid cash and equivalents.
However, one should be cautious before investing in liquid stocks. While a high liquidity level may mean that the company is meeting its obligations at a faster rate compared to others in its domain, it may also indicate that the company is failing to use its assets efficiently.
Hence, one should consider the efficiency level of a company in addition to its liquidity to identify potential winners as this combination is indicative of underlying financial strength.
Measures to Identify Liquid Stocks
Liquidity ratios like Current Ratio, Quick Ratio and Cash Ratio are primarily used to identify companies with strong liquidity.
Current Ratio: It measures current assets relative to current liabilities. This ratio is used to measure a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio – also known as working capital ratio – below 1 indicates that the company has more liabilities than assets. However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered ideal.
Quick Ratio: Unlike current ratio, quick ratio – also called “acid-test ratio" or "quick assets ratio" – indicates a company’s ability to meet short-term obligations. It considers inventory excluding current assets relative to current liabilities. Like the current ratio, a quick ratio of greater than 1 is desirable.
Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to meet its current debt obligations using the most liquid of assets. Though a cash ratio of over 1 may point to sound financials, a high number may indicate inefficiency in cash utilization.
So, a ratio of greater than 1 is desirable at all times but may not always underline a company’s financial health.
Screening Parameters
In order to pick the best of the lot, we have added asset utilization, which is a widely used measure of a company’s efficiency, as one of the screening criteria. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. Though this ratio varies across industries, companies with a ratio higher than their respective industries can be considered efficient.
In order to ensure that these liquid and efficient stocks have solid growth potential, we have added our proprietary Growth Style Score to the screen.
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.)
(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.)
These criteria have narrowed down the universe of over 7,700 stocks to only nine.
Here are four of the nine stocks that qualified the screen:
Headquartered in Simpsonville, SC, KEMET Corporation (NYSE:KEM – Free Report) manufactures and sells passive electronic components under the KEMET brand worldwide. It is the world's largest manufacturer of solid tantalum capacitors and one of the biggest manufacturers of multilayer ceramic capacitors. The company has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 72.92%. Moreover, the Zacks Consensus Estimate for 2017 earnings has increased by a couple of pennies to 90 cents over the last 30 days.
Progress Software Corporation (NASDAQ:PRGS – Free Report) is a global supplier of application development, deployment and management technology, internet and intranet. This Zacks Rank #1 stock has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 18.53%. The Zacks Consensus Estimate for 2017 earnings has increased by a penny to $1.56 per share over the last 30 days.
Hanover, MD-based Ciena Corp (NYSE:CIEN – Free Report) provides equipment, software, and services supporting transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 7.84%. The Zacks Consensus Estimate for 2017 earnings remained steady at $1.49 per share over the last 30 days.
Based in Boston, MA, LPL Financial Holdings Inc. (NASDAQ:LPLA – Free Report) provides an integrated platform of brokerage and investment advisory services to more than 14,000 independent financial advisors, including financial advisors at more than 700 financial institutions across the U.S. The company has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 43.97%. The Zacks Consensus Estimate for 2017 earnings has increased 6.2% to $2.58 per share over the last 30 days.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
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.
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights: KEMET, Progress Software, Ciena and LPL Financial Holdings
For Immediate Release
Chicago, IL –August 01, 2017 - Stocks in this week’s article include KEMET Corporation (NYSE:(KEM - Free Report) – Free Report), Progress Software Corporation (NASDAQ:(PRGS - Free Report) – Free Report), Ciena Corp (NYSE:(CIEN - Free Report) – Free Report) and LPL Financial Holdings Inc. (NASDAQ:(LPLA - Free Report) – Free Report).
4 Impressive Liquid Stocks for Marvelous Returns
Investors seeking impressive returns may allocate their assets in stocks with favorable liquidity positions. Liquidity indicates a company’s capability of meeting debt obligations by converting assets into liquid cash and equivalents.
However, one should be cautious before investing in liquid stocks. While a high liquidity level may mean that the company is meeting its obligations at a faster rate compared to others in its domain, it may also indicate that the company is failing to use its assets efficiently.
Hence, one should consider the efficiency level of a company in addition to its liquidity to identify potential winners as this combination is indicative of underlying financial strength.
Measures to Identify Liquid Stocks
Liquidity ratios like Current Ratio, Quick Ratio and Cash Ratio are primarily used to identify companies with strong liquidity.
Current Ratio: It measures current assets relative to current liabilities. This ratio is used to measure a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio – also known as working capital ratio – below 1 indicates that the company has more liabilities than assets. However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered ideal.
Quick Ratio: Unlike current ratio, quick ratio – also called “acid-test ratio" or "quick assets ratio" – indicates a company’s ability to meet short-term obligations. It considers inventory excluding current assets relative to current liabilities. Like the current ratio, a quick ratio of greater than 1 is desirable.
Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to meet its current debt obligations using the most liquid of assets. Though a cash ratio of over 1 may point to sound financials, a high number may indicate inefficiency in cash utilization.
So, a ratio of greater than 1 is desirable at all times but may not always underline a company’s financial health.
Screening Parameters
In order to pick the best of the lot, we have added asset utilization, which is a widely used measure of a company’s efficiency, as one of the screening criteria. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. Though this ratio varies across industries, companies with a ratio higher than their respective industries can be considered efficient.
In order to ensure that these liquid and efficient stocks have solid growth potential, we have added our proprietary Growth Style Score to the screen.
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. You can see the complete list of today’s Zacks #1 Rank stocks here.)
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.)
These criteria have narrowed down the universe of over 7,700 stocks to only nine.
Here are four of the nine stocks that qualified the screen:
Headquartered in Simpsonville, SC, KEMET Corporation (NYSE:KEM – Free Report) manufactures and sells passive electronic components under the KEMET brand worldwide. It is the world's largest manufacturer of solid tantalum capacitors and one of the biggest manufacturers of multilayer ceramic capacitors. The company has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 72.92%. Moreover, the Zacks Consensus Estimate for 2017 earnings has increased by a couple of pennies to 90 cents over the last 30 days.
Progress Software Corporation (NASDAQ:PRGS – Free Report) is a global supplier of application development, deployment and management technology, internet and intranet. This Zacks Rank #1 stock has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 18.53%. The Zacks Consensus Estimate for 2017 earnings has increased by a penny to $1.56 per share over the last 30 days.
Hanover, MD-based Ciena Corp (NYSE:CIEN – Free Report) provides equipment, software, and services supporting transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 7.84%. The Zacks Consensus Estimate for 2017 earnings remained steady at $1.49 per share over the last 30 days.
Based in Boston, MA, LPL Financial Holdings Inc. (NASDAQ:LPLA – Free Report) provides an integrated platform of brokerage and investment advisory services to more than 14,000 independent financial advisors, including financial advisors at more than 700 financial institutions across the U.S. The company has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 43.97%. The Zacks Consensus Estimate for 2017 earnings has increased 6.2% to $2.58 per share over the last 30 days.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.