Bet on These 3 Top-Ranked Liquid Stocks for Robust Returns
Investors looking for solid returns will benefit from adding stocks with favorable liquidity to their investment portfolio.
Liquidity measures a company’s ability to meet short-term debt obligations by converting assets into liquid cash and equivalents. These stocks have always been on investors’ radar owing to their potential for solid returns.
However, one should be cautious enough before investing in such stocks. High liquidity levels may indicate that the company is clearing its dues faster than its peers. However, it may also suggest that the company is unable to utilize its assets effectively.
Hence, one may consider a company’s efficiency level in addition to its liquidity for identifying prospective 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 the ‘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.
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 three
Here are three stocks that qualified for the screen:
Helmerich & Payne HP is engaged in the contract drilling of oil and gas wells in the United States & internationally. Its technologically-advanced FlexRigs are in great demand and it has upgraded most of its drilling feet with the latest technology. Customer acceptance of Helmerich & Payne's digitization efforts has led to cost reduction, improvement in efficiency and higher profits. The contract driller's low debt levels, on an absolute and relative basis, are also positive in this difficult operating environment. The Zacks Consensus Estimate for its fiscal 2023 earnings is pegged at $4.48 per share, up 4.7% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 124.2%, on average.
UWM Holdings Corporation UWMC primarily underwrites and provides closing documentation for residential mortgage loans. It is the indirect parent company of United Wholesale Mortgage. The company is one of the leading wholesale mortgage lenders and purchase lenders in the United States. The Zacks Consensus Estimate for 2023 earnings is pegged at 24 cents per share, up 9.1% in the past 60 days. UWMC has a Growth Score of A and a trailing four-quarter earnings surprise of 238.9%, on average.
Sprinklr CXM provides a unified customer experience management platform for modern enterprises. Sprinklr’s advanced AI-powered platform aids clients to deliver human experiences to customers all time across all modern communication channels. The company’s client base includes companies like Microsoft and Samsung. The Zacks Consensus Estimate for its fiscal 2023 bottom line is pegged at a loss of 4 cents per share, improved from loss of 8 cents in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 103%, on average.
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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.
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Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
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