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Bet on These 5 Top-Ranked Liquid Stocks for Stellar Returns
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Liquidity indicates a company’s capability of meeting debt obligations by converting assets into liquid cash and equivalents. Companies with a favorable liquidity position have always been in demand as they are believed to have the potential to boost portfolio returns. However, investors often ignore this important yardstick.
Nonetheless, one should exercise caution before investing in such stocks. While a high liquidity level may imply that the company is meeting its obligations at a faster rate than its peers, it may also indicate that the company is failing to use its assets efficiently.
Hence, the efficiency level of a company should be considered in addition to its liquidity to identify potential winners as this combination indicates underlying financial strength.
Measures to Identify Liquid Stocks
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 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 meet 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 cash utilization.
So, a ratio greater than 1 is desirable at all times but may not always appropriately represent a company’s financial condition.
Screening Parameters
In order to pick the best of the lot, 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 the ratio of total sales over 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.
In order 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 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.)
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.)
These criteria have narrowed down the universe of over 7,700 stocks to only nine.
Here are five of the nine stocks that qualified the screen:
Los Angeles, CA-based Herbalife Nutrition Ltd. (HLF - Free Report) develops and sells nutrition solutions to consumers interested in weight management and general wellness. The company has a Growth Score of A and delivered average four-quarter positive earnings surprise of 23.75%. The Zacks Consensus Estimate for the current year has increased nearly 2% to $2.85 over the past 30 days.
Arch Coal Inc. (ARCH - Free Report) is a St. Louis, MI-based natural resource company that produces metallurgical and thermal coal for the production of steel and electricity. Thecompany has a Growth Score of A and average four-quarter positive earnings surprise of 44.21%. The Zacks Consensus Estimate for 2018 earnings has remained stable at $15.05 over the past 30 days.
Niwot, CO-based, Crocs, Inc. (CROX - Free Report) is a provider of innovative casual footwear for men, women and children.The company has a Growth Score of A and delivered average four-quarter positive earnings surprise of 126.3%. The Zacks Consensus Estimate for fiscal 2018 earnings per share has increased 29.6% to 35 cents over the past 30 days.
Headquartered in Boston, MA, Attunity Ltd. is a seller of data integration and Big Data management software solutions. The company has a Growth Score of B and delivered average four-quarter positive earnings surprise of 235.6%. The Zacks Consensus Estimate for fiscal 2018 earnings per share of 45 cents has grown 73% over the past 30 days.
Based in San Jose, CA, Cadence Design Systems Inc. (CDNS - Free Report) offers products and tools that help customers design electronic products. The company has a Growth Score of B and average four-quarter positive earnings surprise of 9.3%. The Zacks Consensus Estimate for 2018 earnings has remained stable at $1.82 over the past 30 days.
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.
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Bet on These 5 Top-Ranked Liquid Stocks for Stellar Returns
Liquidity indicates a company’s capability of meeting debt obligations by converting assets into liquid cash and equivalents. Companies with a favorable liquidity position have always been in demand as they are believed to have the potential to boost portfolio returns. However, investors often ignore this important yardstick.
Nonetheless, one should exercise caution before investing in such stocks. While a high liquidity level may imply that the company is meeting its obligations at a faster rate than its peers, it may also indicate that the company is failing to use its assets efficiently.
Hence, the efficiency level of a company should be considered in addition to its liquidity to identify potential winners as this combination indicates underlying financial strength.
Measures to Identify Liquid Stocks
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 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 meet 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 cash utilization.
So, a ratio greater than 1 is desirable at all times but may not always appropriately represent a company’s financial condition.
Screening Parameters
In order to pick the best of the lot, 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 the ratio of total sales over 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.
In order 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 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.)
These criteria have narrowed down the universe of over 7,700 stocks to only nine.
Here are five of the nine stocks that qualified the screen:
Los Angeles, CA-based Herbalife Nutrition Ltd. (HLF - Free Report) develops and sells nutrition solutions to consumers interested in weight management and general wellness. The company has a Growth Score of A and delivered average four-quarter positive earnings surprise of 23.75%. The Zacks Consensus Estimate for the current year has increased nearly 2% to $2.85 over the past 30 days.
Arch Coal Inc. (ARCH - Free Report) is a St. Louis, MI-based natural resource company that produces metallurgical and thermal coal for the production of steel and electricity. Thecompany has a Growth Score of A and average four-quarter positive earnings surprise of 44.21%. The Zacks Consensus Estimate for 2018 earnings has remained stable at $15.05 over the past 30 days.
Niwot, CO-based, Crocs, Inc. (CROX - Free Report) is a provider of innovative casual footwear for men, women and children.The company has a Growth Score of A and delivered average four-quarter positive earnings surprise of 126.3%. The Zacks Consensus Estimate for fiscal 2018 earnings per share has increased 29.6% to 35 cents over the past 30 days.
Headquartered in Boston, MA, Attunity Ltd. is a seller of data integration and Big Data management software solutions. The company has a Growth Score of B and delivered average four-quarter positive earnings surprise of 235.6%. The Zacks Consensus Estimate for fiscal 2018 earnings per share of 45 cents has grown 73% over the past 30 days.
Based in San Jose, CA, Cadence Design Systems Inc. (CDNS - Free Report) offers products and tools that help customers design electronic products. The company has a Growth Score of B and average four-quarter positive earnings surprise of 9.3%. The Zacks Consensus Estimate for 2018 earnings has remained stable at $1.82 over the past 30 days.
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.