Scoop Up These 4 Top-Ranked Liquid Stocks for Strong Returns
Investors looking for high returns will likely benefit from adding stocks with sound liquidity levels, as it encourages business growth.
Liquidity measures a company’s capability to meet its short-term debt obligations. Stocks with high liquidity levels have always been in demand, owing to their potential to provide maximum returns.
Investors should be alert before considering such stocks. While a high liquidity level may imply that the company is clearing its dues faster than its peers, it may also suggest that it cannot utilize assets competently.
Hence, one may consider efficiency and liquidity to identify potential 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 ‘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 eight.
Here are four of the eight stocks that qualified for the screen:
American Public Education, Inc APEI is an online and campus-based post-secondary education provider. The company serves approximately 108,400 students through three subsidiary institutions — American Public University System (APUS), Rasmussen University (RU) and Hondros College of Nursing (HCN). American Public is benefiting from solid contributions from the APUS and HCN segments. For second-quarter 2023, the company expects APUS total net course registrations to grow 2-6% year over year and HCN’s total enrolment to increase 22% from the prior year’s figure. The Zacks Consensus Estimate for APEI’s 2023 bottom line is pegged at loss of $1.02 per share compared with a loss per share of $6.08 reported in the previous year. The company has a Growth Score of B.
Oceaneering International OII is a leading provider of integrated technology solutions and is active at all the phases of the offshore oilfield lifecycle. Oceaneering’s geographically diversified asset base spread across the United States and rest of the world and its revenues — evenly split between international and domestic operations — lowers its risk profile. The outlook for the company’s ‘Subsea Robotics’ unit is particularly impressive. The company’s strong relationships with high-quality customers provide revenue visibility and business certainty. The Zacks Consensus Estimate for 2023 earnings is pegged at $1.12 per share, up 6.7% in the past 60 days. OII has a Growth Score of B.
Dillard's DDS is a large departmental store chain featuring fashion apparel and home furnishings. As of Apr 29, Dillard's operated 247 full-line Dillard’s stores and 27 clearance stores in 29 states and on dillards.com. The company’s revenue performance is gaining from better inventory management and consumer demand. The company witnessed robust sales in cosmetics and ladies’ apparel in the last reported quarter. Also, share repurchases and dividend payments bode well. The Zacks Consensus Estimate for Dillard's fiscal 2023 earnings has been revised upward to $34.69 per share from $33.78 in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 110.4%, on average.
DoorDash DASH offers a logistics and technology platform to local businesses. The platform connects merchants, consumers and dashers. It completed its Initial Public Offering (IPO) in December 2020. DoorDash is expanding its global footprint, powered by Wolt and Bbot acquisitions. The Wolt acquisition is helping DoorDash spread its operations in 23 countries and address a larger customer base, which is expected to drive top-line growth. An expanding partner base, including Albertson and Grocery Outlet, will help DASH provide express grocery delivery to consumers. The Zacks Consensus Estimate for its 2023 bottom line is pegged at loss of $1.73 per share, suggesting an improvement from a loss of $2.59 reported in the previous year. DASH has a Growth Score of B.
Get the remaining 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 and 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 mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Dillard's, Inc. (DDS) : Free Stock Analysis Report
American Public Education, Inc. (APEI) : Free Stock Analysis Report
Oceaneering International, Inc. (OII) : Free Stock Analysis Report
DoorDash, Inc. (DASH) : Free Stock Analysis Report
