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4 Thriving Liquid Stocks to Boost Your Portfolio in 2022

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Investors seeking attractive returns can benefit by adding stocks with favorable liquidity levels to their portfolios. Liquidity levels are a good gauge of a company’s financial position.

Liquidity measures a company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents.

However, a high liquidity level may indicate that the company is clearing its dues at a faster rate compared with peers but 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 to identify 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. A current ratio — also known as the 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 suggest that the company failed to utilize its assets significantly. Hence, a range of 1-3 is considered ideal.

Quick Ratio: Unlike the current ratio, the quick ratio — also called the “acid-test ratio" or the "quick assets ratio" — indicates a company’s ability to pay short-term obligations. It considers inventory excluding the current assets relative to current liabilities. Like the current ratio, a quick ratio of more than 1 is desirable.

Cash Ratio: This is the most conservative ratio among the three, as it takes into account cash and cash equivalents as well as invested funds relative to current liabilities. It measures a company’s ability to meet current debt obligations using the most liquid assets. Though a cash ratio of more than 1 may point toward sound financials, a higher number may indicate inefficiency in cash utilization.

A ratio greater than 1 is desirable at all times but may not always represent a company’s financial condition.

Screening Parameters

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.

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 greater than 1 are desirable, significantly high ratios may indicate inefficiency.)

Asset utilization greater than the 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:

Based in Plano, TX, Diodes (DIOD - Free Report) is a leading manufacturer and supplier of high-quality discrete and analog semiconductor products, mainly to the communications, computing, industrial, consumer electronics and automotive markets. The company's two manufacturing facilities are in Shanghai, China, while it has a wafer fabrication plant in Kansas City. Diodes recently reported fourth-quarter 2021 earnings of $1.60 per share, which beat the Zacks Consensus Estimate by 10.3% and increased 116.2% year over year. Revenues of $480.2 million surpassed the consensus mark by 0.8% and rose 37% year over year. The Zacks Consensus Estimate for 2022 earnings is pegged at $6.47 per share, up 8.4% in the past 60 days. Diodes has a Growth Score of B and a trailing four-quarter earnings surprise of 10.8%, on average.

Headquartered in Los Angeles, CA, Houlihan Lokey (HLI - Free Report) is a prominent independent investment bank that offers capital markets, mergers and acquisitions, financial restructurings and financial and valuation advisory services to clients like corporations, financial sponsors and government agencies across the globe. Houlihan Lokey recently concluded the acquisition of GCA Corporation. The acquisition will help the company to boost its M&A advisory services and expand its presence in the Asia-Pacific region. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $7.73 per share, up 21.5% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 28.1%, on average.

Troy, MI-based Skyline (SKY - Free Report) designs, produces and distributes manufactured housing and recreational vehicles. The company has more than 40 manufacturing facilities across the United States and western Canada. The company also boasts a factory-direct retail business —Titan Factory Direct — and has 18 retail locations mainly in the southern United States. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $3.81 per share, up 14.8% in the past 60 days. Skyline has a Growth Score of A and a trailing four-quarter earnings surprise of 49.6%, on average.

Based in Phoenix, AZ, Cavco Industries (CVCO - Free Report) designs and manufactures factory-built housing structures. The company’s products are sold under brand names like Cavco Homes, Palm Harbor Homes, Friendship Homes, Fleetwood Homes, Fairmont Homes and Chariot Eagle, among others. Cavco Industries is one of the prominent producers of park model RVs, vacation cabins and modular homes. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $20.45 per share, up 49.2% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 44.6%, on average.

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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.

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