Investors looking for high returns will likely benefit from adding stocks with sound liquidity levels, as liquidity encourages business growth.
Liquidity primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents. These stocks have always been on investors’ radar owing to their potential to provide strong returns.
Investors should be alert before considering such stocks. While a high liquidity level may imply that the company is clearing its dues faster than its peers, it may also suggest that it cannot utilize its assets competently.
Hence, one may consider 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 ‘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.
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 five.
Here are four of the five stocks that qualified for the screen:
Lantheus Holdings ( LNTH Quick Quote LNTH - Free Report) is involved in developing, manufacturing, selling and distributing diagnostic medical imaging agents and products for diagnosing cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radiopharmacies and wholesalers. The Zacks Consensus Estimate for Lantheus Holdings’ 2023 earnings has been revised upward to $4.79 per share from $3.47 in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 50%, on average. Perion Network ( PERI Quick Quote PERI - Free Report) is an Israel-based technology company that offers brands and publishers online advertising and search monetization solutions. 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 2023 earnings is pegged at $2.69 per share, up 15.9% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 31.7%, on average. Meta Platforms ( META Quick Quote META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook is likely to drive digital ad revenues. The company’s extensive cost-cutting measures also bode well. Meta recently announced another round of layoffs that will likely impact nearly 10k employees in addition to 11k laid off in November 2022. The Zacks Consensus Estimate for 2023 earnings is pegged at $10.38 per share, up 31% in the past 60 days. META has a Growth Score of B and a trailing four-quarter earnings surprise of 8.6%, on average. Sea Limited ( SE Quick Quote SE - Free Report) is an internet service provider company based in Singapore. It offers Digital Entertainment, E-Commerce and Digital Financial Services known as Garena, Shopee and AirPay. The company operates primarily in Indonesia, Taiwan, Vietnam, Thailand, Philippines, Malaysia and Singapore. The Zacks Consensus Estimate for 2023 bottom line is pegged at $2.96 per share, suggesting an improvement from a loss of 13 cents 60 days ago. SE has a Growth Score of B and a trailing four-quarter earnings surprise of 69.7%, 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 mentioned in this material. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.