A company with strong liquidity always has the potential to provide higher returns as stable financial resources help fuel business growth. It indicates a company’s capability of meeting debt obligations by converting its assets into liquid cash and equivalents.
However, one should be careful of investing in a stock with high liquidity level as it may also indicate that the company is failing to utilize its assets efficiently. Therefore, in addition to the sufficient cash in hand, an investor might also consider a company’s capital deployment abilities before putting his money on its stock. A healthy company with favorable liquidity may prove to be a profitable pick for one’s portfolio. 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 six. Here are four of the six stocks that qualified the screen: Atlanta, GA-based Haverty Furniture Companies, Inc. ( HVT Quick Quote HVT - Free Report) is a notable retailer of residential furniture and accessories in the United States. The company also offers custom upholstery products and eclectic looks, and mattress product lines. The Zacks Consensus Estimate for 2021 earnings has been revised upward by 89.6% to $4.02 per share in the past 30 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 63.37%, on average. Domiciled in Baltimore, MD, Medifast, Inc. ( MED Quick Quote MED - Free Report) manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products. The Zacks Consensus Estimate for 2021 earnings has been revised upward by 25.1% over the last 30 days to $13.62 per share. The company has a Growth Score of A. It has a trailing four-quarter earnings surprise of 12.65%, on average. Headquartered in Springfield, MA, Smith & Wesson Brands, Inc. ( SWBI Quick Quote SWBI - Free Report) provides firearms products, including modern sporting rifles, bolt action rifles, revolvers and pistols, muzzleloaders, and handcuffs. The Zacks Consensus Estimate for its fiscal 2021 earnings has been revised upward by 4 cents to $4.04 per share in the past 30 days. The company has a Growth Score of A. It has a trailing four-quarter earnings surprise of 48.66%, on average. Based in Seattle, WA, Expeditors International of Washington, Inc. ( EXPD Quick Quote EXPD - Free Report) is a leading third-party logistics (3PL) provider. The company is engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight. The Zacks Consensus Estimate for 2021 earnings has been revised upward by 4.8% over the past seven days to $4.83 per share. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 39.5%, on average. 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