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5 Top-Ranked Liquid Stocks to Magnify Portfolio Returns
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A company’s liquidity position is considered one of the major indicators of a company’s financial health. Liquidity level seeks to provide a measure of a company’s ability to turn its assets into cash and cash equivalents in order to clear its debt obligations. Companies with favorable liquidity levels often come up with strong business growth and positive price performance.
Meanwhile, high liquidity may not always indicate that the company is financially strong. It may also mean that the company is running its business inefficiently. Hence, one should give precedence to a company’s efficiency level in addition to its liquidity position. Investing in a favorably placed liquid company with impressive efficiency level may provide strong returns.
Ratios to Measure Liquidity
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 very 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, significantly high ratios may indicate inefficiency)
Asset utilization greater than industry average (Higher asset utilization than the industry average indicates a company’s efficiency.)
(Back-tested 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.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only 16.
Here are five stocks from the list:
Domino's Pizza, Inc. (DPZ - Free Report) is the recognized world leader in pizza delivery. Domino's has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 1.4%.
Ciena Corporation (CIEN - Free Report) is the network specialist, focused on expanding the possibilities for its customers' networks while reducing their cost of ownership. Ciena has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 10.8%.
Tilly's, Inc. (TLYS - Free Report) is a specialty retailer in the action sports industry selling clothing, shoes and accessories. Tilly's has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 73.7%.
NetEase, Inc. (NTES - Free Report) is an Internet technology company engaged in the development of applications, services and other technologies in China. NetEase has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 28.3%.
McDermott International Inc. is one of the leading worldwide energy services companies. McDermott has a Growth Style Score of ‘B’ and an average four-quarter positive earnings 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 backtesting 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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5 Top-Ranked Liquid Stocks to Magnify Portfolio Returns
A company’s liquidity position is considered one of the major indicators of a company’s financial health. Liquidity level seeks to provide a measure of a company’s ability to turn its assets into cash and cash equivalents in order to clear its debt obligations. Companies with favorable liquidity levels often come up with strong business growth and positive price performance.
Meanwhile, high liquidity may not always indicate that the company is financially strong. It may also mean that the company is running its business inefficiently. Hence, one should give precedence to a company’s efficiency level in addition to its liquidity position. Investing in a favorably placed liquid company with impressive efficiency level may provide strong returns.
Ratios to Measure Liquidity
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 very 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, significantly high ratios may indicate inefficiency)
Asset utilization greater than 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 Style Score less than or equal to B
(Back-tested 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.)
Just these few criteria have narrowed down the universe of over 7,700 stocks to only 16.
Here are five stocks from the list:
Domino's Pizza, Inc. (DPZ - Free Report) is the recognized world leader in pizza delivery. Domino's has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 1.4%.
Ciena Corporation (CIEN - Free Report) is the network specialist, focused on expanding the possibilities for its customers' networks while reducing their cost of ownership. Ciena has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 10.8%.
Tilly's, Inc. (TLYS - Free Report) is a specialty retailer in the action sports industry selling clothing, shoes and accessories. Tilly's has a Growth Style Score of ‘A’ and an average four-quarter positive earnings surprise of 73.7%.
NetEase, Inc. (NTES - Free Report) is an Internet technology company engaged in the development of applications, services and other technologies in China. NetEase has a Growth Style Score of ‘B’ and an average four-quarter positive earnings surprise of 28.3%.
McDermott International Inc. is one of the leading worldwide energy services companies. McDermott has a Growth Style Score of ‘B’ and an average four-quarter positive earnings 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 backtesting 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 »