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Snap These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
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Investors seeking healthy returns, especially amid volatile market conditions, will likely gain from adding stocks with robust liquidity levels to their portfolios.
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 peers. However, it may suggest that the company cannot utilize its assets competently.
Hence, an investor may consider a company’s efficiency level 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.
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 10.
Here are four of the 10 stocks that qualified for the screen:
Chipotle Mexican Grill (CMG - Free Report) , with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. The company’s performance is gaining from strong comparable restaurant sales growth and new restaurant openings. Apart from its strong comparable restaurant sales growth, digital efforts, Chipotlane add-ons and menu innovation are other tailwinds. Also, the strength in digital sales, a rise in menu prices and higher restaurant-level operating margin have been driving performance. The Zacks Consensus Estimate for CMG’ 2023 earnings has been revised upward to $43.90 per share from $41.38 in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 4.7%, on average.
Perion Network (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 $2.84 per share, up 5.6% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 19.3%, on average.
Meta Platforms (META - Free Report) is benefiting from steady user growth, particularly Asia Pacific. Increased engagement in products like Instagram, WhatsApp, Messenger and Facebook is likely to drive digital ad revenues. In the last reported quarter, the company’s revenues were up 2.6% year over year to $28.65 billion. The Rest of the World (RoW) revenues increased 10% on a year-over-year basis. The Asia-Pacific and the United States & Canada revenues increased 3.5% and 3% year over year, respectively. Revenues from Family of Apps (includes Facebook, Instagram, Messenger, WhatsApp and other services) increased 4% year over year to $28.31 billion. The Zacks Consensus Estimate for 2023 earnings is pegged at $12.04 per share, up 15.3% in the past 60 days. META has a Growth Score of B and a trailing four-quarter earnings surprise of 15.5%, on average.
Dropbox (DBX - Free Report) is a service company headquartered in San Francisco, CA. It offers a platform which enables users to store and share files, photos, videos, songs and spreadsheets. The company is gaining from its efforts to drive registered users to paying users of its personal and team plans. In the last reported quarter, the company’s paying users were 17.90 million compared with 17.09 million at the end of the prior-year quarter. Total revenues were $611.1 million, up 8.7% on a year-over-year basis. Further, upselling opportunities as well as launch of new products bode well. The Zacks Consensus Estimate for 2023 earnings is pegged at $1.85 per share, up 10.1% in the past 60 days. DBX has a Growth Score of B and a trailing four-quarter earnings surprise of 10.4%, 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 mentioned in this material.
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Snap These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
Investors seeking healthy returns, especially amid volatile market conditions, will likely gain from adding stocks with robust liquidity levels to their portfolios.
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 peers. However, it may suggest that the company cannot utilize its assets competently.
Hence, an investor may consider a company’s efficiency level 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.
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 10.
Here are four of the 10 stocks that qualified for the screen:
Chipotle Mexican Grill (CMG - Free Report) , with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. The company’s performance is gaining from strong comparable restaurant sales growth and new restaurant openings. Apart from its strong comparable restaurant sales growth, digital efforts, Chipotlane add-ons and menu innovation are other tailwinds. Also, the strength in digital sales, a rise in menu prices and higher restaurant-level operating margin have been driving performance. The Zacks Consensus Estimate for CMG’ 2023 earnings has been revised upward to $43.90 per share from $41.38 in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 4.7%, on average.
Perion Network (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 $2.84 per share, up 5.6% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 19.3%, on average.
Meta Platforms (META - Free Report) is benefiting from steady user growth, particularly Asia Pacific. Increased engagement in products like Instagram, WhatsApp, Messenger and Facebook is likely to drive digital ad revenues. In the last reported quarter, the company’s revenues were up 2.6% year over year to $28.65 billion. The Rest of the World (RoW) revenues increased 10% on a year-over-year basis. The Asia-Pacific and the United States & Canada revenues increased 3.5% and 3% year over year, respectively. Revenues from Family of Apps (includes Facebook, Instagram, Messenger, WhatsApp and other services) increased 4% year over year to $28.31 billion. The Zacks Consensus Estimate for 2023 earnings is pegged at $12.04 per share, up 15.3% in the past 60 days. META has a Growth Score of B and a trailing four-quarter earnings surprise of 15.5%, on average.
Dropbox (DBX - Free Report) is a service company headquartered in San Francisco, CA. It offers a platform which enables users to store and share files, photos, videos, songs and spreadsheets. The company is gaining from its efforts to drive registered users to paying users of its personal and team plans. In the last reported quarter, the company’s paying users were 17.90 million compared with 17.09 million at the end of the prior-year quarter. Total revenues were $611.1 million, up 8.7% on a year-over-year basis. Further, upselling opportunities as well as launch of new products bode well. The Zacks Consensus Estimate for 2023 earnings is pegged at $1.85 per share, up 10.1% in the past 60 days. DBX has a Growth Score of B and a trailing four-quarter earnings surprise of 10.4%, 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 mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.