Creating a portfolio with favorable liquidity stocks will likely favor investors seeking healthy returns.
Liquidity measures a company’s capability 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. High liquidity levels 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 competently.
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. 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 firm 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, considering 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.
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 the universe of more than 7,700 stocks to only 11.
Here are four of the 11 stocks that qualified for the screen:
Based in Phoenix, AZ,
Cavco Industries ( CVCO Quick Quote CVCO - Free Report) designs and manufactures factory-built housing structures. The company’s products are sold under brands like Cavco Homes, Palm Harbor Homes, Friendship Homes, Fleetwood Homes, Fairmont Homes and Chariot Eagle. Cavco Industries is one of the prominent producers of park model RVs, vacation cabins and modular homes. The Zacks Consensus Estimate for fiscal 2023 earnings is pegged at $24.05 per share, up 29.2% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 50.4%, on average.
North Billerica, MA-based
Lantheus Holdings ( LNTH Quick Quote LNTH - Free Report) develops, manufactures, sells and distributes diagnostic medical imaging agents and products for diagnosing cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radio pharmacies and wholesalers. The Zacks Consensus Estimate for 2022 earnings moved up 15.9% to $3.57 per share in the past 60 days. Lantheus has a Growth Score of A. It has a trailing four-quarter earnings surprise of 54.6%, on average.
Headquartered in Mountain View, CA,
Pure Storage ( PSTG Quick Quote PSTG - Free Report) provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. Pure Storage’s performance is driven by momentum in subscription services’ revenues and revenue growth in the domestic and international segments. Subscription services’ revenues are benefiting from the robust adoption of Evergreen subscription services and synergies from the Portworx acquisition. Strength in FlashArray and FlashBlade businesses and strong growth prospects in the data-driven markets of Artificial Intelligence (AI) and machine learning (ML) bode well. The Zacks Consensus Estimate for fiscal 2023 earnings is pegged at $1.18 per share, up 24.2% in the past 60 days. PSTG has a Growth Score of A and a trailing four-quarter earnings surprise of 171.8%, on average.
Perion Network ( PERI Quick Quote PERI - Free Report) is a technology company that offers online advertising and search monetization solutions to brands and publishers. The company is committed to providing data-driven execution, from high-impact ad formats to branded search and a unified social and mobile programmatic platform. The Zacks Consensus Estimate for its 2022 earnings is pegged at $1.87 per share, up 6.3% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 39.4%, on average.
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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.