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4 Top-Performing Liquid Stocks for Attractive Returns in 2022
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Identifying stocks that offer healthy returns may sometimes prove to be tricky for investors. In such a scenario, one may consider liquidity levels that are a good indicator of a company’s financial health.
Liquidity measures a company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents. These stocks have always been on investors’ radar, owing to their potential to offer alluring returns.
Nonetheless, one should be careful about investing in a stock with a high liquidity level as it may also suggest that the company is not able to utilize assets effectively. It is advisable to consider a company’s efficiency level along with liquidity to identify potential 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 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 suggest 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.)
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 nine.
Here are four of the nine 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 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.
Based in Nashville, TN, Louisiana-Pacific Corporation (LPX - Free Report) is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. The company operates 20 modern, strategically located facilities in the United States and Canada, two facilities in Chile and a facility in Brazil. It also operates facilities through a joint venture. The company’s products are used primarily in new home construction, repair as well as remodeling and outdoor structures. The company is reaping benefits from solid demand from the U.S. residential market. Strategic business transformation, effective cash management and inorganic moves are likely to boost performance in the future. The Zacks Consensus Estimate for 2022 earnings is pegged at $11.87 per share, up 43.9% in the past 60 days. Louisiana-Pacific has a Growth Score of B and a trailing four-quarter earnings surprise of 13.3%, 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 Orlando, FL, SeaWorld Entertainment theme park and entertainment company with operations located primarily in the United States. The company owns popular theme park brands, including the SeaWorld, Busch Gardens and Sesame Place. The company recently reported fourth-quarter 2021 results. SeaWorld reported revenues of $370.8 million, up 24.4% from the fourth quarter of 2019. The Zacks Consensus Estimate for 2022 earnings is pegged at $4.00 per share, up 22% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 137.2%, 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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4 Top-Performing Liquid Stocks for Attractive Returns in 2022
Identifying stocks that offer healthy returns may sometimes prove to be tricky for investors. In such a scenario, one may consider liquidity levels that are a good indicator of a company’s financial health.
Liquidity measures a company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents. These stocks have always been on investors’ radar, owing to their potential to offer alluring returns.
Nonetheless, one should be careful about investing in a stock with a high liquidity level as it may also suggest that the company is not able to utilize assets effectively. It is advisable to consider a company’s efficiency level along with liquidity to identify potential 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 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 suggest 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 nine.
Here are four of the nine 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 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.
Based in Nashville, TN, Louisiana-Pacific Corporation (LPX - Free Report) is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. The company operates 20 modern, strategically located facilities in the United States and Canada, two facilities in Chile and a facility in Brazil. It also operates facilities through a joint venture. The company’s products are used primarily in new home construction, repair as well as remodeling and outdoor structures. The company is reaping benefits from solid demand from the U.S. residential market. Strategic business transformation, effective cash management and inorganic moves are likely to boost performance in the future. The Zacks Consensus Estimate for 2022 earnings is pegged at $11.87 per share, up 43.9% in the past 60 days. Louisiana-Pacific has a Growth Score of B and a trailing four-quarter earnings surprise of 13.3%, 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 Orlando, FL, SeaWorld Entertainment theme park and entertainment company with operations located primarily in the United States. The company owns popular theme park brands, including the SeaWorld, Busch Gardens and Sesame Place. The company recently reported fourth-quarter 2021 results. SeaWorld reported revenues of $370.8 million, up 24.4% from the fourth quarter of 2019. The Zacks Consensus Estimate for 2022 earnings is pegged at $4.00 per share, up 22% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 137.2%, 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.