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4 Top-Ranked Liquid Stocks to Boost Portfolio Returns in 2022

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Creating a portfolio that includes stocks with favorable liquidity is likely to favor investors seeking attractive returns.

Liquidity measures a company’s ability to meet its short-term debt obligations. Stocks with high liquidity levels have always been in demand, owing to their potential to provide maximum returns.

One needs to exercise caution before investing in such stocks. A high liquidity level may indicate that the company is clearing its dues faster than its peers. However, it may also suggest that the company cannot utilize its assets efficiently.

Hence, an investor may consider a company’s efficiency level in addition to its liquidity for identifying 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 11.

Here are four of the 11 stocks that qualified the screen:

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 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 $12.43 per share, up 45.6% 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

Denver, CO-based Summit Materials (SUM - Free Report) is a construction material company. The company supplies cement, ready-mix concrete, aggregates and asphalt mainly in the United States and British Columbia, Canada. The Zacks Consensus Estimate for its 2022 earnings is pegged at $1.59 per share, up 6.7% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 7.5%, 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 and 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 (SEAS - Free Report) 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 16.5% 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.

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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.