Bet on these 5 best performing liquid stocks for solid returns
This story originally appeared on Zacks
Investors looking for strong returns will benefit from adding stocks with favorable liquidity to their investment portfolio.
Liquidity measures a company’s ability to honor short-term debts by converting assets into cash and cash equivalents. These stocks have always been on the radar of investors because of their potential for strong returns.
However, one should be sufficiently careful before investing in such stocks. A high level of liquidity may indicate that the company is paying its contributions faster than its peers. However, it can also suggest that the company is not able to use its assets efficiently.
Therefore, one can consider a company’s level of efficiency in addition to its liquidity to identify potential winners.
Measures to identify liquid stocks
Current ratio: It measures current assets against current liabilities. This ratio is used to measure a company’s potential to honor short and long term debts. A current ratio – also known as the working capital ratio – less than 1 indicates that the business has more liabilities than assets. However, a current high ratio does not always indicate that the company is in good financial health. It can also indicate that the company has not used its assets in a meaningful way. Therefore, a range of 1 to 3 is considered ideal.
Quick report: Unlike the current ratio, the Quick Ratio – also known as the âAcid Test Ratioâ or âQuick Asset Ratioâ – reflects a company’s ability to pay its short-term obligations. It considers inventories excluding current assets versus current liabilities. ratio, a fast ratio greater than 1 is desirable.
Cash ratio: This is the most conservative of the three ratios, as it takes into account cash and cash equivalents as well as funds invested versus current liabilities. It measures a company’s ability to honor its debts using the most liquid assets. While a cash ratio greater than 1 may indicate a healthy financial position, a higher number may indicate inefficiency in the use of cash.
A ratio greater than 1 is desirable at all times, but may not always adequately represent the financial condition of a business.
To pick the best of the bunch, we added asset usage – a widely used measure of a business’s efficiency – as one of the selection criteria. Asset utilization is the ratio of total sales in the last 12 months to the average of the last four quarters of total assets. Although this ratio varies from sector to sector, companies with a higher ratio than their respective sectors can be considered efficient.
To ensure that these liquid and efficient stocks have solid growth potential, we have added our own 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.)
Use of assets above the industry average (Higher asset utilization than the industry average indicates a company’s efficiency.)
Zacks rank equal to # 1 (Only stocks with a strong buy rating can pass). You can see The full list of today’s Zacks # 1 Rank stocks here.
Growth score less than or equal to B (The back-tested results show that stocks with a Growth score of A or B when combined with a rank 1 or 2 of Zacks easily beat other stocks.)
These criteria reduced the universe from over 7,700 stocks to just 18
Here are five of the 18 actions that qualified the screen:
Based in Birmingham, AL, Hibbett HIBB, previously known as Hibbett Sports, Inc, has evolved its sporting goods offering to an athletic-inspired fashion assortment. The company’s new corporate identity reflects these transitions and highlights its consumer-centric Toe-to-Head orientation that responds to footwear trends and establishes cross-category connectivity with apparel and accessories offerings. The company offers products for individual and team sports in multiple stores and its omnichannel platform. Zacks’ consensus estimate for FY2022 earnings is set at $ 11.30 per share, up 13.2% in the past 60 days. The company has a growth score of A and a surprise four-quarter profit of 124.6%, on average.
Based in Palo Alto, California, You’re here TSLA is the market leader in battery electric car sales in the United States. The company holds around 60% of the market share. In fact, its flagship Model 3 makes up about half of the U.S. electric vehicle market. Tesla, which has earned a reputation as a gold standard over the years, is now a much larger entity than when it started since its IPO in 2010. Its market capitalization is almost double the combined value of two largest American auto giants. , General Motors and Ford. Zacks’ consensus estimate for 2021 earnings is set at $ 5.91 per share, up 16.8% in the past 60 days. The company has a growth score of B and a surprise earnings over the past four quarters of 25.4% on average.
Based in St. Louis, MO Resources of the Ark ARCH is one of the largest coal producers in the United States, operating nine mines in major coalfields across the country. The location of its mines and access to export facilities allow the company to ship coal around the world. During the fiscal year ended December 31, 2020, it sold nearly 63 million tonnes of coal, of which 0.9 million tonnes were purchased from third parties. Zacks’ consensus estimate for 2021 earnings is set at $ 18.70 per share, up 118.7% in the past 60 days. The company has a growth score of B and a surprise four-quarter profit of 11%, on average.
Based in Houston, Texas, Magnolia Oil and Gas MGY is an independent upstream operator engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids. The company is focused on the Eagle Ford Shale and Austin Chalk formations in South Texas. Zacks’ consensus estimate for earnings in 2021 is set at $ 2.23 per share, up 12.1% in the past 60 days. The company has a growth score of B and a surprise profit for the last four quarters of 39.3% on average.
Based in Santa Barbara, California, His bone SONO is a consumer electronics company. It is mainly involved in manufacturing smart speakers with immersive sound experience. The company is leveraging changing consumer technologies and entertainment trends to meet customers’ audio consumption habits, primarily characterized by the rapid adoption of voice assistants and streaming services. Zacks’ consensus estimate for FY2021 earnings is set at $ 1.11 per share, unchanged for the past 60 days. The company has a growth score of A and a surprise profit for the last four quarters of 297.3%, on average.
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
Disclosure: Information on the performance of Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance.
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