Liquidity of a stock is an important parameter that many investors tend to ignore. It primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.
These stocks have always been in demand on account of their potential to provide maximum returns. However, one should be observant before investing in such stocks. While a high liquidity level may imply that the company is clearing its dues at a faster rate compared with peers, it may also indicate that the company is failing to utilize its assets efficiently Hence, one may consider a company’s efficiency level in addition to its liquidity for identifying prospective winners. Measures to Identify Liquid Stocks Current Ratio: It measures current assets relative to current liabilities. This ratio is used for measuring 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 pay 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 more than 1 may point to sound financials, a higher number may indicate inefficiency in cash utilization. So, a ratio greater than 1 is desirable at all times but may not always appropriately represent a company’s financial condition. 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 the 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 Score less than or equal to B (Back-tested results show that stocks with a Growth 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 more than 7,700 stocks to only 11. Here are five of the 11 stocks that qualified the screen: Hayward, CA-based Ultra Clean Holdings, Inc. ( UCTT Quick Quote UCTT - Free Report) is a notable designer, developer, manufacturer, and tester of production tools, subsystems and modules for the semiconductor and display capital equipment industries. The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 11.9% over the past 30 days to $3.39 per share. The company has a Growth Score of A. It has a trailing four-quarter earnings surprise of 30.82%, on average. Domiciled in Bedford, MA, iRobot Corporation ( IRBT Quick Quote IRBT - Free Report) designs, builds and sells robots in the United States, and internationally. Its noteworthy offerings include Roomba floor vacuuming robots, Braava family of automatic floor mopping robots and Root robots that help children to learn coding. The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 26.6% to $3.14 in the past 30 days. The company has a Growth Score of A. It has a trailing four-quarter earnings surprise of a whopping 228.19%, on average. Based in Troy, MI, Skyline Champion Corporation ( SKY Quick Quote SKY - Free Report) operates as a factory-built housing company in North America. The Zacks Consensus Estimate for its fiscal 2021 earnings has been revised upward by 13.1% over the last 30 days to $1.21 per share. The company has a Growth Score of A. It has a trailing four-quarter earnings surprise of 61.99%, on average. Headquartered in Southport, CT, Sturm, Ruger & Company, Inc. ( RGR Quick Quote RGR - Free Report) is involved in designing, manufacturing and selling firearms under the Ruger name and trademark in the United States. The Zacks Consensus Estimate for its 2021 earnings has been revised upward by 31.2% to $4.58 in the past 30 days. The company has a Growth Score of A. Houston, TX-based Magnolia Oil & Gas Corporation ( MGY Quick Quote MGY - Free Report) is primarily engaged in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids reserves in the United States. The Zacks Consensus Estimate for its 2021 earnings has been revised upward by a 30% over the past seven days to 78 cents per share. The company has a Growth Score of B. Also, current year sales estimate indicates year-over-year growth of 32.8%, at present. Get the remaining 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. 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