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Tap These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
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Identifying stocks that offer healthy returns may be tricky for investors, especially amid the current volatile market scenario. Investors may consider stocks with healthy liquidity levels, which is a good indicator of a company’s financial well-being.
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 cannot utilize assets effectively. It is advisable to consider a company’s efficiency and liquidity to identify 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’ — 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, 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.
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 the universe of more than 7,700 stocks to only 11
Here are four of the 11 stocks that qualified for the screen:
Inter Parfums (IPAR - Free Report) manufactures, distributes and markets a wide array of fragrances and related products. Inter Parfums continues to see solid momentum in its travel retail business. Considering the solid year-to-date performance and robust projections for the rest of the year, management raised its 2022 view during third-quarter earnings release. Management also expects growth in 2023, likely driven by a solid brand portfolio and global distribution network. The company is working to expand its business through new licenses or buyouts. The Zacks Consensus Estimate for 2022 bottom line is pegged at $3.40 per share, up 4.3% in the past 60 days. IPAR has a Growth Score of A and a trailing four-quarter earnings surprise of 27.8%, on average.
TravelCenters of America is a full-service national travel center chain in the United States. The company’s locations serve various professional drivers and other highway travelers each month, including all major trucking fleets. TA operates its centers under the TravelCenters of America, TA and Petro brand names and offers diesel and gasoline fueling services, restaurants, heavy truck repair facilities, stores and other services. The Zacks Consensus Estimate for 2022 bottom line is pegged at $9.03 per share, up 11.8% in the past 60 days. TA has a Growth Score of A and a trailing four-quarter earnings surprise of 1,707%, on average.
Forestar Group (FOR - Free Report) is a residential lot development company and a major subsidiary of. D.R. Horton. The company’s fourth-quarter fiscal 2022 revenues amounted to $381.4 million on 3,914 lots sold. In fiscal 2022, FOR delivered more than 17,600 residential lots. The Zacks Consensus Estimate for fiscal 2023 earnings is pegged at $2.77 per share, up 6.1% in the past 60 days. FOR has a Growth Score of A and a trailing four-quarter earnings surprise of 50.2%, on average.
Qualys (QLYS - Free Report) provides cloud security and compliance solutions that enable businesses to identify security risks to their IT infrastructures and thwart cyber-attacks. The company's solutions are provided through its QualysGuard Cloud Platform. Accelerated digital transformation globally and mainstream adoption of a hybrid working model are driving demand for the company's security and networking product portfolio. The Zacks Consensus Estimate for 2022 earnings is pegged at $3.62 per share, up 2.3% in the past 60 days. QLYS has a Growth Score of B and a trailing four-quarter earnings surprise of 8.9%, 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 and 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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Tap These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
Identifying stocks that offer healthy returns may be tricky for investors, especially amid the current volatile market scenario. Investors may consider stocks with healthy liquidity levels, which is a good indicator of a company’s financial well-being.
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 cannot utilize assets effectively. It is advisable to consider a company’s efficiency and liquidity to identify 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’ — 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, 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.
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 the universe of more than 7,700 stocks to only 11
Here are four of the 11 stocks that qualified for the screen:
Inter Parfums (IPAR - Free Report) manufactures, distributes and markets a wide array of fragrances and related products. Inter Parfums continues to see solid momentum in its travel retail business. Considering the solid year-to-date performance and robust projections for the rest of the year, management raised its 2022 view during third-quarter earnings release. Management also expects growth in 2023, likely driven by a solid brand portfolio and global distribution network. The company is working to expand its business through new licenses or buyouts. The Zacks Consensus Estimate for 2022 bottom line is pegged at $3.40 per share, up 4.3% in the past 60 days. IPAR has a Growth Score of A and a trailing four-quarter earnings surprise of 27.8%, on average.
TravelCenters of America is a full-service national travel center chain in the United States. The company’s locations serve various professional drivers and other highway travelers each month, including all major trucking fleets. TA operates its centers under the TravelCenters of America, TA and Petro brand names and offers diesel and gasoline fueling services, restaurants, heavy truck repair facilities, stores and other services. The Zacks Consensus Estimate for 2022 bottom line is pegged at $9.03 per share, up 11.8% in the past 60 days. TA has a Growth Score of A and a trailing four-quarter earnings surprise of 1,707%, on average.
Forestar Group (FOR - Free Report) is a residential lot development company and a major subsidiary of. D.R. Horton. The company’s fourth-quarter fiscal 2022 revenues amounted to $381.4 million on 3,914 lots sold. In fiscal 2022, FOR delivered more than 17,600 residential lots. The Zacks Consensus Estimate for fiscal 2023 earnings is pegged at $2.77 per share, up 6.1% in the past 60 days. FOR has a Growth Score of A and a trailing four-quarter earnings surprise of 50.2%, on average.
Qualys (QLYS - Free Report) provides cloud security and compliance solutions that enable businesses to identify security risks to their IT infrastructures and thwart cyber-attacks. The company's solutions are provided through its QualysGuard Cloud Platform. Accelerated digital transformation globally and mainstream adoption of a hybrid working model are driving demand for the company's security and networking product portfolio. The Zacks Consensus Estimate for 2022 earnings is pegged at $3.62 per share, up 2.3% in the past 60 days. QLYS has a Growth Score of B and a trailing four-quarter earnings surprise of 8.9%, 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 and 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.