Bet on These 4 Top-Performing Liquid Stocks for Solid Returns
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.
Investors looking for solid returns will benefit from adding stocks with favorable liquidity to their investment portfolio.
However, one should be careful about investing in a stock with a high liquidity level. High liquidity may also indicate that the company cannot utilize its assets competently.
Besides having sufficient cash, an investor might also consider a company’s capital deployment abilities before investing in the stock. A healthy company with favorable liquidity may be a profitable pick for one’s portfolio.
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.
Screening Parameters
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 9.
Here are four of the nine stocks that qualified for the screen:
Oxford Industries OXM is an apparel company that designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. Oxford's brands include Tommy Bahama, Johnny Was, Duck Head, Lilly Pulitzer, Southern Tide and The Beaufort Bonnet Company. The company granted licenses to select third parties to produce and sell certain product categories under its Lilly Pulitzer and Tommy Bahama brands. The Zacks Consensus Estimate for fiscal 2023 earnings is pegged at $10.48 per share, up 4.4% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 91.1%, on average.
ChromaDex CDXC and its subsidiaries supply phytochemical reference standards and reference materials, related contract services, and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets. ChromaDex's core business strategy is to use the intellectual property harnessed by its expertise in the area of natural products and in the creation of reference materials to the industry as the basis for providing new and alternative, green, mass marketable products to its customers. The Zacks Consensus Estimate for its 2022 bottom line is pegged at a loss of 29 cents per share, down 1 cent in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 6.5%, on average.
UserTesting USER pioneered a video-first, enterprise-grade software as a service or SaaS platform. The platform enables organizations to execute customer-centric visions by seeing and hearing the experiences of real people as they engage with products, designs, apps, processes, concepts or brands. The UserTesting Human Insight platform captures diverse customer perspectives from targeted audiences who have opted to share their thoughts, whether for digital, real-world or omnichannel experiences. The platform generates video-based Customer Experience Narratives. The Zacks Consensus Estimate for 2022 earnings is pegged at a loss of 31 cents, lowered by 1 cent in the past 60 days. USER has a Growth Score of A and a trailing four-quarter earnings surprise of 36.9%, on average.
TravelCenters of America TA is full-service national travel center chain in the United States. The company’s locations serve hundreds of thousands of professional drivers and other highway travelers each month - including virtually all major trucking fleets. The company operates its centres under the TravelCenters of America, TA and Petro brand names and offer diesel and gasoline fueling services, restaurants, heavy truck repair facilities, stores and other services. The Zacks Consensus Estimate for 2022 bottom line is pegged at $9.03 per share, up 19.4% in the past 60 days. TA has a Growth Score of A and a trailing four-quarter earnings surprise of 1,707%, 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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TravelCenters of America LLC (TA) : Free Stock Analysis Report
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