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These 5 Liquid Stocks Have the Potential to Outperform
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A strategy that seeks to invest in shares of companies having favorable liquidity positions is poised to yield healthy returns irrespective of market conditions. Liquidity indicates a company’s ability to meet its short-term debt obligations.
However, it may not always be true that high liquidity will signify that the company is financially strong. It may also indicate that the company is failing to utilize its assets efficiently. It is therefore important to also focus on efficiency alongside liquidity to build a profitable portfolio.
Liquidity Ratios
Liquidity ratios like Current Ratio, Quick Ratio and Cash Ratio are primarily used to identify companies with strong liquidity.
Current Ratio: It measures current assets relative to current liabilities. This ratio is used for measuring a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio – also known as working capital ratio – below 1 indicates that the company has more liabilities than assets. However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered to be ideal.
Quick Ratio: Unlike current ratio, quick ratio – also called “acid-test ratio" or "quick assets ratio" – indicates a company’s ability to pay short-term obligations. It considers inventory excluding current assets relative to current liabilities. Like the current ratio, a quick ratio of greater than 1 is desirable.
Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to pay its current debt obligations using the most liquid of assets. Though a cash ratio higher than 1 may point to sound financials, a high number may indicate inefficiency in using cash.
So, a ratio of greater than 1 is always desirable but it may not always underline a company’s financial health.
Screening Parameters
In order to avoid selection of inefficient companies, we have added asset utilization, which is a widely used measure of a company’s efficiency, as one of the screening criteria. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. Since this ratio varies across industries, companies with a ratio higher than their respective industries can be called efficient.
In order to ensure that these liquid and efficient stocks have solid growth potential too, 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 of greater than 1 are desirable, stocks with high ratios may indicate inefficient companies.)
Asset utilization greater than industry average (Higher asset utilization than industry average indicates a company’s efficiency.)
Zacks Rank equal to #1 (Only Strong Buy rated stocks can get through.)
Growth Style Score less than or equal to B
(Backtested results show that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 handily beat other stocks.)
Using a handful of these criteria, we’ve narrowed down the universe of over 7,700stocks to only 13.
Here are 5 of the 13 stocks making it through the screen:
Cable ONE, Inc. (CABO - Free Report) is a cable company that provides Internet, cable television and telephone service primarily in the U.S. CABO reported earnings per share (EPS) of $4.65 last quarter, surpassing the Zacks Consensus Estimate of $3.20. Cable ONE also has an average four-quarter EPS surprise of 13%.
Masimo Corporation (MASI - Free Report) develops innovative monitoring technologies that significantly improve patient care. MASI reported EPS of 53 cents last quarter, beating the Zacks Consensus Estimate of 43 cents. Masimo has a current year expected EPS growth rate of 32.9%, higher than the industry average of 14%.
Globant S.A. (GLOB - Free Report) is a technology services provider that offers engineering, design, and innovation services for clients. GLOB reported EPS of 23 cents last quarter, a couple of cents higher than the Zacks Consensus Estimate. Globant also has an average four-quarter EPS surprise of 3.5%.
Altisource Portfolio Solutions S.A. (ASPS - Free Report) is engaged in provision of real estate mortgage portfolio management and related technology products, as well as asset recovery and customer relationship management services. ASPS reported EPS of $1.47 cents last quarter, higher than the Zacks Consensus Estimate of $1.27. Altisource Portfolio Solutions also has an average two-quarter EPS surprise of 26.3%.
CommVault Systems, Inc. (CVLT - Free Report) provides Unified Data Management solutions for high-performance data protection, universal availability and simplified management of data on complex storage networks. CVLT reported EPS of 13 cents last quarter, surpassing the Zacks Consensus Estimate of 2 cents. CommVault also has an average two-quarter EPS surprise of more than 100%.
Get the rest of the 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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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These 5 Liquid Stocks Have the Potential to Outperform
A strategy that seeks to invest in shares of companies having favorable liquidity positions is poised to yield healthy returns irrespective of market conditions. Liquidity indicates a company’s ability to meet its short-term debt obligations.
However, it may not always be true that high liquidity will signify that the company is financially strong. It may also indicate that the company is failing to utilize its assets efficiently. It is therefore important to also focus on efficiency alongside liquidity to build a profitable portfolio.
Liquidity Ratios
Liquidity ratios like Current Ratio, Quick Ratio and Cash Ratio are primarily used to identify companies with strong liquidity.
Current Ratio: It measures current assets relative to current liabilities. This ratio is used for measuring a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio – also known as working capital ratio – below 1 indicates that the company has more liabilities than assets. However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered to be ideal.
Quick Ratio: Unlike current ratio, quick ratio – also called “acid-test ratio" or "quick assets ratio" – indicates a company’s ability to pay short-term obligations. It considers inventory excluding current assets relative to current liabilities. Like the current ratio, a quick ratio of greater than 1 is desirable.
Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to pay its current debt obligations using the most liquid of assets. Though a cash ratio higher than 1 may point to sound financials, a high number may indicate inefficiency in using cash.
So, a ratio of greater than 1 is always desirable but it may not always underline a company’s financial health.
Screening Parameters
In order to avoid selection of inefficient companies, we have added asset utilization, which is a widely used measure of a company’s efficiency, as one of the screening criteria. Asset utilization is a ratio of total sales over the past 12 months to the last four-quarter average of total assets. Since this ratio varies across industries, companies with a ratio higher than their respective industries can be called efficient.
In order to ensure that these liquid and efficient stocks have solid growth potential too, 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 of greater than 1 are desirable, stocks with high ratios may indicate inefficient companies.)
Asset utilization greater than industry average
(Higher asset utilization than industry average indicates a company’s efficiency.)
Zacks Rank equal to #1
(Only Strong Buy rated stocks can get through.)
Growth Style Score less than or equal to B
(Backtested results show that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 or #2 handily beat other stocks.)
Using a handful of these criteria, we’ve narrowed down the universe of over 7,700stocks to only 13.
Here are 5 of the 13 stocks making it through the screen:
Cable ONE, Inc. (CABO - Free Report) is a cable company that provides Internet, cable television and telephone service primarily in the U.S. CABO reported earnings per share (EPS) of $4.65 last quarter, surpassing the Zacks Consensus Estimate of $3.20. Cable ONE also has an average four-quarter EPS surprise of 13%.
Masimo Corporation (MASI - Free Report) develops innovative monitoring technologies that significantly improve patient care. MASI reported EPS of 53 cents last quarter, beating the Zacks Consensus Estimate of 43 cents. Masimo has a current year expected EPS growth rate of 32.9%, higher than the industry average of 14%.
Globant S.A. (GLOB - Free Report) is a technology services provider that offers engineering, design, and innovation services for clients. GLOB reported EPS of 23 cents last quarter, a couple of cents higher than the Zacks Consensus Estimate. Globant also has an average four-quarter EPS surprise of 3.5%.
Altisource Portfolio Solutions S.A. (ASPS - Free Report) is engaged in provision of real estate mortgage portfolio management and related technology products, as well as asset recovery and customer relationship management services. ASPS reported EPS of $1.47 cents last quarter, higher than the Zacks Consensus Estimate of $1.27. Altisource Portfolio Solutions also has an average two-quarter EPS surprise of 26.3%.
CommVault Systems, Inc. (CVLT - Free Report) provides Unified Data Management solutions for high-performance data protection, universal availability and simplified management of data on complex storage networks. CVLT reported EPS of 13 cents last quarter, surpassing the Zacks Consensus Estimate of 2 cents. CommVault also has an average two-quarter EPS surprise of more than 100%.
Get the rest of the 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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »