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4 Top-Performing Liquid Stocks for Robust Returns in 2022
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Liquidity indicates a company’s capability to meet debt obligations by converting its assets into liquid cash and equivalents.
A company with adequate liquidity always has the potential to deliver higher returns as stable financial resources can drive business growth.
However, one should be careful about investing in a stock with a high liquidity level. High liquidity may also indicate that the company cannot utilize its assets competently.
Besides having sufficient cash in hand, an investor might also consider a company’s capital deployment abilities before investing in the stock. A healthy company with favorable liquidity may prove to be a profitable pick for one’s portfolio.
Measures to Identify Liquid Stocks
Current Ratio: It measures current assets relative to current liabilities. The ratio gauges 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 suggest 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" — reflects 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 considers cash and cash equivalents and 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 always desirable 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 12.
Here are four of the 12 stocks that qualified for the screen:
San Jose, CA-based Cadence Design Systems (CDNS - Free Report) offers products and tools that help customers design electronic products. Cadence’s core electronic design automation or EDA software and services enable engineers to develop different types of integrated circuits. Cadence is well-positioned for growth driven by its expanding product portfolio and strong demand for products from existing and emerging markets. In 2021, Cadence introduced 13 new products, including Cadence Helium Virtual and Hybrid Studio and Allegro X. The company is gaining from higher investments in emerging trends like hyperscale computing, 5G and autonomous driving along with strength in the semiconductor end-market. Driven by strong first-quarter results, the company expects full-year revenues in the range of $3.395-$3.435 billion compared with the earlier guidance of $3.32-$3.38 billion. The Zacks Consensus Estimate for 2022 earnings is pegged at $3.94 per share, up 5.6% in the past 60 days. CDNS has a Growth Score of A and a trailing four-quarter earnings surprise of 10.6%, on average.
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’ strong product portfolio is helping it capitalize on high-growth opportunity areas like smart infrastructure, smartphones, 5G, IoT, home automation, cloud computing, server, storage, data centers, connected cars, embedded systems and precision controls. The Zacks Consensus Estimate for 2022 earnings is pegged at $6.93 per share, up 7.8% in the past 60 days. Diodes has a Growth Score of B and a trailing four-quarter earnings surprise of 9.2%, on average.
Dallas, TX-based Southwest Airlines Co (LUV - Free Report) is a passenger airline service in the United States. Continued recovery in air-travel demand bodes well for Southwest Airlines. Anticipating improvement in bookings, the carrier is well positioned to reap profits in the remaining three quarters of 2022. Fleet- modernization efforts of LUV are encouraging as well. At the end of the first quarter of 2022, Southwest Airlines had 722 Boeing 737 jets in its fleet. The carrier uses its fleet to serve 121 destinations across 11 countries (the United States and 10 near-international countries, including Dominican Republic, Mexico, Jamaica, The Bahamas, Aruba, Costa Rica, Belize, Cuba, the Cayman Islands and Caicos). The Zacks Consensus Estimate for 2022 earnings is pegged at $2.57 per share, up 127.4% in the past 60 days. LUV has a Growth Score of B and a trailing four-quarter earnings surprise of 33.5%, on average
Israel-based company, Nova (NVMI - Free Report) , is a good addition to the portfolio as the company has strong growth prospects. Nova provides material, optical and chemical metrology solutions for advanced process control in semiconductor manufacturing. The company's product portfolio combines the latest hardware and software innovation to aid the advancement of semiconductor manufacturing. The Zacks Consensus Estimate for its 2022 earnings is pegged at $4.69 per share, up 11.9% in the past 60 days. NVMI has a Growth Score of B and a trailing four-quarter earnings surprise of 19.8%, 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 Robust Returns in 2022
Liquidity indicates a company’s capability to meet debt obligations by converting its assets into liquid cash and equivalents.
A company with adequate liquidity always has the potential to deliver higher returns as stable financial resources can drive business growth.
However, one should be careful about investing in a stock with a high liquidity level. High liquidity may also indicate that the company cannot utilize its assets competently.
Besides having sufficient cash in hand, an investor might also consider a company’s capital deployment abilities before investing in the stock. A healthy company with favorable liquidity may prove to be a profitable pick for one’s portfolio.
Measures to Identify Liquid Stocks
Current Ratio: It measures current assets relative to current liabilities. The ratio gauges 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 suggest 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" — reflects 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 considers cash and cash equivalents and 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 always desirable 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 12.
Here are four of the 12 stocks that qualified for the screen:
San Jose, CA-based Cadence Design Systems (CDNS - Free Report) offers products and tools that help customers design electronic products. Cadence’s core electronic design automation or EDA software and services enable engineers to develop different types of integrated circuits. Cadence is well-positioned for growth driven by its expanding product portfolio and strong demand for products from existing and emerging markets. In 2021, Cadence introduced 13 new products, including Cadence Helium Virtual and Hybrid Studio and Allegro X. The company is gaining from higher investments in emerging trends like hyperscale computing, 5G and autonomous driving along with strength in the semiconductor end-market. Driven by strong first-quarter results, the company expects full-year revenues in the range of $3.395-$3.435 billion compared with the earlier guidance of $3.32-$3.38 billion. The Zacks Consensus Estimate for 2022 earnings is pegged at $3.94 per share, up 5.6% in the past 60 days. CDNS has a Growth Score of A and a trailing four-quarter earnings surprise of 10.6%, on average.
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’ strong product portfolio is helping it capitalize on high-growth opportunity areas like smart infrastructure, smartphones, 5G, IoT, home automation, cloud computing, server, storage, data centers, connected cars, embedded systems and precision controls. The Zacks Consensus Estimate for 2022 earnings is pegged at $6.93 per share, up 7.8% in the past 60 days. Diodes has a Growth Score of B and a trailing four-quarter earnings surprise of 9.2%, on average.
Dallas, TX-based Southwest Airlines Co (LUV - Free Report) is a passenger airline service in the United States. Continued recovery in air-travel demand bodes well for Southwest Airlines. Anticipating improvement in bookings, the carrier is well positioned to reap profits in the remaining three quarters of 2022. Fleet- modernization efforts of LUV are encouraging as well. At the end of the first quarter of 2022, Southwest Airlines had 722 Boeing 737 jets in its fleet. The carrier uses its fleet to serve 121 destinations across 11 countries (the United States and 10 near-international countries, including Dominican Republic, Mexico, Jamaica, The Bahamas, Aruba, Costa Rica, Belize, Cuba, the Cayman Islands and Caicos). The Zacks Consensus Estimate for 2022 earnings is pegged at $2.57 per share, up 127.4% in the past 60 days. LUV has a Growth Score of B and a trailing four-quarter earnings surprise of 33.5%, on average
Israel-based company, Nova (NVMI - Free Report) , is a good addition to the portfolio as the company has strong growth prospects. Nova provides material, optical and chemical metrology solutions for advanced process control in semiconductor manufacturing. The company's product portfolio combines the latest hardware and software innovation to aid the advancement of semiconductor manufacturing. The Zacks Consensus Estimate for its 2022 earnings is pegged at $4.69 per share, up 11.9% in the past 60 days. NVMI has a Growth Score of B and a trailing four-quarter earnings surprise of 19.8%, 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.