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5 Top-Performing Liquid Stocks to Snap Up for Higher Returns
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Investors seeking healthy returns can benefit by adding stocks with favorable liquidity levels to their portfolio. Liquidity levels are a good indicator of a company’s financial health.
Liquidity measures the company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents.
However, one needs to be careful before adding such stocks to their investment portfolio. While a high liquidity level may indicate that the company is clearing its dues at a faster rate compared with peers, it may also suggest that the company is failing to utilize resources competently.
Therefore, it is advisable to consider a company’s efficiency level in addition to its liquidity for identifying potential winners. An efficient company with a favorable liquidity level may prove to be a lucrative addition to 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 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 as well as 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 — a widely-used measure of a company’s efficiency — as one of the screening criteria. Asset utilization is the ratio of total sales in 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.)
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 14
Here are five of the 14 stocks that qualified the screen:
Headquartered in Houston, TX, Magnolia Oil & Gas (MGY - Free Report) is an independent upstream operator engaged in exploration, development and production of natural gas, crude oil as well as natural gas liquids. The company is focused on the Eagle Ford Shale and Austin Chalk formations in South Texas. The Zacks Consensus Estimate for 2021 earnings is pegged at $1.95 per share, up 45.5% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 39.3%, on average.
Headquartered in Baltimore, MD, Medifast (MED - Free Report) is a leading manufacturer and distributor of clinically proven healthy living products and programs. The company produces, distributes and sells weight loss, weight management and healthy living products through its direct online channels as well as franchise weight control centers. The Zacks Consensus Estimate for its 2021 earnings is pegged at $13.74 per share, up 0.9% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 16%, on average.
Providence, RI-based Textron (TXT - Free Report) is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It also offers solutions and services for aircraft, fastening systems as well as industrial products and components. Its products include commercial and military helicopters, light- and mid-size business jets, plastic fuel tanks, automotive trim products, golf carts and utility vehicles, turf-car equipment, industrial pumps and gears, engineered fastening systems and solutions along with other industrial products. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.28 per share, up 6.8% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 37.4%, on average.
Based in Houston, TX, ConocoPhillips (COP - Free Report) is primarily involved in exploration and production of oil and natural gas. Considering proved reserves and production, the company is the largest explorer and producer in the world. The company has strong presence across conventional and unconventional plays in 16 countries. The Zacks Consensus Estimate for 2021 earnings is pegged at $4.81 per share, up 44% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 8.3%, on average.
Based in Long Island City, NY, Steven Madden (SHOO - Free Report) is engaged in designing, sourcing, and selling of fashionable brand and private label footwear for men, women and children along with private label fashion handbags and accessories across the globe. The Zacks Consensus Estimate for 2021 earnings is pegged at $2.08 per share, up 24.6% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 56.2%, 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.
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.
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5 Top-Performing Liquid Stocks to Snap Up for Higher Returns
Investors seeking healthy returns can benefit by adding stocks with favorable liquidity levels to their portfolio. Liquidity levels are a good indicator of a company’s financial health.
Liquidity measures the company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents.
However, one needs to be careful before adding such stocks to their investment portfolio. While a high liquidity level may indicate that the company is clearing its dues at a faster rate compared with peers, it may also suggest that the company is failing to utilize resources competently.
Therefore, it is advisable to consider a company’s efficiency level in addition to its liquidity for identifying potential winners. An efficient company with a favorable liquidity level may prove to be a lucrative addition to 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 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 as well as 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 — a widely-used measure of a company’s efficiency — as one of the screening criteria. Asset utilization is the ratio of total sales in 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 14
Here are five of the 14 stocks that qualified the screen:
Headquartered in Houston, TX, Magnolia Oil & Gas (MGY - Free Report) is an independent upstream operator engaged in exploration, development and production of natural gas, crude oil as well as natural gas liquids. The company is focused on the Eagle Ford Shale and Austin Chalk formations in South Texas. The Zacks Consensus Estimate for 2021 earnings is pegged at $1.95 per share, up 45.5% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 39.3%, on average.
Headquartered in Baltimore, MD, Medifast (MED - Free Report) is a leading manufacturer and distributor of clinically proven healthy living products and programs. The company produces, distributes and sells weight loss, weight management and healthy living products through its direct online channels as well as franchise weight control centers. The Zacks Consensus Estimate for its 2021 earnings is pegged at $13.74 per share, up 0.9% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 16%, on average.
Providence, RI-based Textron (TXT - Free Report) is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It also offers solutions and services for aircraft, fastening systems as well as industrial products and components. Its products include commercial and military helicopters, light- and mid-size business jets, plastic fuel tanks, automotive trim products, golf carts and utility vehicles, turf-car equipment, industrial pumps and gears, engineered fastening systems and solutions along with other industrial products. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.28 per share, up 6.8% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 37.4%, on average.
Based in Houston, TX, ConocoPhillips (COP - Free Report) is primarily involved in exploration and production of oil and natural gas. Considering proved reserves and production, the company is the largest explorer and producer in the world. The company has strong presence across conventional and unconventional plays in 16 countries. The Zacks Consensus Estimate for 2021 earnings is pegged at $4.81 per share, up 44% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 8.3%, on average.
Based in Long Island City, NY, Steven Madden (SHOO - Free Report) is engaged in designing, sourcing, and selling of fashionable brand and private label footwear for men, women and children along with private label fashion handbags and accessories across the globe. The Zacks Consensus Estimate for 2021 earnings is pegged at $2.08 per share, up 24.6% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 56.2%, 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