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Snap Up These 4 Top-Ranked Liquid Stocks for Robust Returns
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Investors seeking healthy returns will gain from adding stocks with favorable liquidity in their investment portfolio.
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’ radars owing to their solid return potential.
However, one should be cautious before investing in these stocks. Though high liquidity levels indicate that the company is clearing its dues faster than peers, it may also suggest that the firm is not able to utilize assets efficiently.
Hence, one may consider a company’s efficiency level along with its liquidity for identifying probable 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 16.
Here are four of the 16 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. The company primarily caters to the communications, computing, industrial, consumer electronics and automotive markets. DIOD’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.
Kearney, NE-based Buckle (BKE - Free Report) is a well-known retailer that sells a wide array of brand names and private label casual apparel, including tops, denim and other casual bottoms, sportswear, outerwear, accessories and footwear. Buckle emphasizes on personalized attention to its clients and offers individual customer services such as free alterations, layaways and a loyalty program. The Zacks Consensus Estimate for its fiscal 2022 earnings is pegged at $5.25 per share, up 8.9% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 45%, on average.
Hayward, CA-based Ultra Clean Holdings (UCTT - Free Report) develops and supplies critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean provides its clients an integrated outsourced solution for gas delivery systems and other subassemblies as well as improved design-to-delivery cycle times along with component neutral design and manufacturing and component testing capabilities. Ultra Clean's client base includes original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries. The Zacks Consensus Estimate for 2022 earnings is pegged at $5.03 per share, up 7.9% in the past 60 days. Ultra Clean Holdings has a Growth Score of B and a trailing four-quarter earnings surprise of 6.2%, on average.
Based in Orlando, FL, SeaWorld Entertainment is a theme park and entertainment company with operations located primarily in the United States. The company owns popular theme park brands, including 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 fourth-quarter 2019 levels. The Zacks Consensus Estimate for 2022 earnings is pegged at $4.10 per share, up 21.7% in the past 60 days. The company has a Growth Score of A 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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Snap Up These 4 Top-Ranked Liquid Stocks for Robust Returns
Investors seeking healthy returns will gain from adding stocks with favorable liquidity in their investment portfolio.
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’ radars owing to their solid return potential.
However, one should be cautious before investing in these stocks. Though high liquidity levels indicate that the company is clearing its dues faster than peers, it may also suggest that the firm is not able to utilize assets efficiently.
Hence, one may consider a company’s efficiency level along with its liquidity for identifying probable 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 16.
Here are four of the 16 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. The company primarily caters to the communications, computing, industrial, consumer electronics and automotive markets. DIOD’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.
Kearney, NE-based Buckle (BKE - Free Report) is a well-known retailer that sells a wide array of brand names and private label casual apparel, including tops, denim and other casual bottoms, sportswear, outerwear, accessories and footwear. Buckle emphasizes on personalized attention to its clients and offers individual customer services such as free alterations, layaways and a loyalty program. The Zacks Consensus Estimate for its fiscal 2022 earnings is pegged at $5.25 per share, up 8.9% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 45%, on average.
Hayward, CA-based Ultra Clean Holdings (UCTT - Free Report) develops and supplies critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean provides its clients an integrated outsourced solution for gas delivery systems and other subassemblies as well as improved design-to-delivery cycle times along with component neutral design and manufacturing and component testing capabilities. Ultra Clean's client base includes original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries. The Zacks Consensus Estimate for 2022 earnings is pegged at $5.03 per share, up 7.9% in the past 60 days. Ultra Clean Holdings has a Growth Score of B and a trailing four-quarter earnings surprise of 6.2%, on average.
Based in Orlando, FL, SeaWorld Entertainment is a theme park and entertainment company with operations located primarily in the United States. The company owns popular theme park brands, including 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 fourth-quarter 2019 levels. The Zacks Consensus Estimate for 2022 earnings is pegged at $4.10 per share, up 21.7% in the past 60 days. The company has a Growth Score of A 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.