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Building a portfolio with stocks that have robust liquidity levels will likely work for investors seeking healthy returns. 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 can consider adding stocks like American Superconductor Corporation (AMSC - Free Report) , Ubiquiti Inc. (UI - Free Report) , Sezzle Inc. (SEZL - Free Report) and monday.com Ltd. (MNDY - Free Report) to their portfolios to boost returns.
However, one should be careful about investing in a stock with a high liquidity level. High liquidity may indicate that the company cannot utilize its assets competently.
Besides sufficient cash, an investor might consider a company’s capital deployment abilities before investing. 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 — the working capital ratio — below 1 indicates that the company has more liabilities than assets. A high current ratio does not always suggest that the company is in good financial shape. It may also indicate 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 — the “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. A quick ratio of more than 1 is desirable, like the current ratio.
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 existing 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 industries can be considered efficient.
We added our proprietary Growth Style Score to the screen to ensure these liquid and efficient stocks have solid growth potential.
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 is more significant than the industry average: Higher asset utilization than the industry average indicates a company’s efficiency.
Growth Score less than or equal to B: Back-tested results show that stocks with a Growth Score of A or B handily beat other stocks when combined with a Zacks Rank #1 or 2 (Buy).
These criteria have narrowed the universe of more than 7,700 stocks to only 10.
Here are four of the 10 stocks that qualified the screen:
American Superconductor Corporation is a provider of megawatt-scale power resiliency solutions. It develops and sells a wide range of products and solutions based on power electronic systems and high-temperature superconductor wires that improve the efficiency, reliability and quality of electricity during its generation, transmission, distribution and usage. It operates under two segments, namely Grid and Wind.
In the last reported quarter, revenues came in at $54.5 million, up 60.3% year over year, driven by the acquisition of NWL and higher shipments of new energy power systems and electrical control system shipments. AMSC had $200 million in 12-month backlog and $300 million in total backlog.
Continued momentum across semiconductors, renewables, mining and metals and military end-markets bodes well. For the third quarter, AMSC expects revenues in the range of $55 million to $60 million.
The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at 50 cents per share, up 61.3% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 328.2%, on average.
Sezzle is a fintech company that operates a digital payment platform mainly across the United States and Canada. This platform offers customers interest-free installment plans at online stores and certain in-store locations. In the last reported quarter, revenues jumped 71.3% year over year due to an increasing subscriber base. As of Sept. 30, 2024, SEZL had 529,000 active subscribers across the Anywhere and Premium platforms.
Management raised the top and bottom-line outlook for 2024 owing to strong growth and the inclusion of the newly launched banking program with WebBank. It expects total revenue growth of 55% compared with 35-40% mentioned earlier. Earnings per share are expected to be $12.05 compared with $9.25 stated earlier. The Zacks Consensus Estimate for 2024 earnings is pegged at $9.78 per share, up 45.8% in the past 60 days. The company has a Growth Score of B.
Ubiquiti, along with its subsidiaries, offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Its service-provider product platforms offer carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing; while enterprise product platforms provide wireless local area network infrastructure, video surveillance products and machine-to-machine communication components.
Ubiquiti reported strong first-quarter fiscal 2025 results, with both the bottom and top lines surpassing the respective Zacks Consensus Estimate. The company is benefiting from solid growth in the Enterprise Technology segment, backed by healthy demand in North America, Europe, and the Middle East and Africa regions. Its strategy of consistent dividend payments while maintaining a sustainable payout ratio is positive. Solid growth in free cash flow underscores efficient resource management and implies that the company is well-positioned to invest in growth initiatives and pay off debt. However, soft demand trend in the Service Provider segment is acting as a headwind. Growing geopolitical tension between the United States and China remains a major concern.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $7.30 per share, up 1.8% in the past 60 days. The company has a Growth Score of A.
monday.com’s Work OS is a cloud-based a “low code - no code” platform that contains building blocks to build work management tools and software applications. MNDY’s platform is used by more than 225,000 clients across more than 200 industries.
In the last reported quarter, revenues surged 33% to $251 million, while it surpassed $1 billion in annual recurring revenues. Driven by business momentum, MNDY expects revenues in the range of $964 million to $966 million, representing year-over-year growth of 32% at the midpoint.
The Zacks Consensus Estimate for 2024 earnings is pegged at $3.20 per share, up 15.9% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 71.6%, on average.
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.
Disclosure: Officers, directors and 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.
Image: Bigstock
4 Top-Performing Liquid Stocks Strengthening Portfolio Returns
Building a portfolio with stocks that have robust liquidity levels will likely work for investors seeking healthy returns. 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 can consider adding stocks like American Superconductor Corporation (AMSC - Free Report) , Ubiquiti Inc. (UI - Free Report) , Sezzle Inc. (SEZL - Free Report) and monday.com Ltd. (MNDY - Free Report) to their portfolios to boost returns.
However, one should be careful about investing in a stock with a high liquidity level. High liquidity may indicate that the company cannot utilize its assets competently.
Besides sufficient cash, an investor might consider a company’s capital deployment abilities before investing. 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 — the working capital ratio — below 1 indicates that the company has more liabilities than assets. A high current ratio does not always suggest that the company is in good financial shape. It may also indicate 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 — the “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. A quick ratio of more than 1 is desirable, like the current ratio.
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 existing 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 industries can be considered efficient.
We added our proprietary Growth Style Score to the screen to ensure these liquid and efficient stocks have solid growth potential.
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 is more significant 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 handily beat other stocks when combined with a Zacks Rank #1 or 2 (Buy).
These criteria have narrowed the universe of more than 7,700 stocks to only 10.
Here are four of the 10 stocks that qualified the screen:
American Superconductor Corporation is a provider of megawatt-scale power resiliency solutions. It develops and sells a wide range of products and solutions based on power electronic systems and high-temperature superconductor wires that improve the efficiency, reliability and quality of electricity during its generation, transmission, distribution and usage. It operates under two segments, namely Grid and Wind.
In the last reported quarter, revenues came in at $54.5 million, up 60.3% year over year, driven by the acquisition of NWL and higher shipments of new energy power systems and electrical control system shipments. AMSC had $200 million in 12-month backlog and $300 million in total backlog.
Continued momentum across semiconductors, renewables, mining and metals and military end-markets bodes well. For the third quarter, AMSC expects revenues in the range of $55 million to $60 million.
The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at 50 cents per share, up 61.3% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 328.2%, on average.
Sezzle is a fintech company that operates a digital payment platform mainly across the United States and Canada. This platform offers customers interest-free installment plans at online stores and certain in-store locations. In the last reported quarter, revenues jumped 71.3% year over year due to an increasing subscriber base. As of Sept. 30, 2024, SEZL had 529,000 active subscribers across the Anywhere and Premium platforms.
Management raised the top and bottom-line outlook for 2024 owing to strong growth and the inclusion of the newly launched banking program with WebBank. It expects total revenue growth of 55% compared with 35-40% mentioned earlier. Earnings per share are expected to be $12.05 compared with $9.25 stated earlier. The Zacks Consensus Estimate for 2024 earnings is pegged at $9.78 per share, up 45.8% in the past 60 days. The company has a Growth Score of B.
Ubiquiti, along with its subsidiaries, offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Its service-provider product platforms offer carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing; while enterprise product platforms provide wireless local area network infrastructure, video surveillance products and machine-to-machine communication components.
Ubiquiti reported strong first-quarter fiscal 2025 results, with both the bottom and top lines surpassing the respective Zacks Consensus Estimate. The company is benefiting from solid growth in the Enterprise Technology segment, backed by healthy demand in North America, Europe, and the Middle East and Africa regions. Its strategy of consistent dividend payments while maintaining a sustainable payout ratio is positive. Solid growth in free cash flow underscores efficient resource management and implies that the company is well-positioned to invest in growth initiatives and pay off debt. However, soft demand trend in the Service Provider segment is acting as a headwind. Growing geopolitical tension between the United States and China remains a major concern.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $7.30 per share, up 1.8% in the past 60 days. The company has a Growth Score of A.
monday.com’s Work OS is a cloud-based a “low code - no code” platform that contains building blocks to build work management tools and software applications. MNDY’s platform is used by more than 225,000 clients across more than 200 industries.
In the last reported quarter, revenues surged 33% to $251 million, while it surpassed $1 billion in annual recurring revenues. Driven by business momentum, MNDY expects revenues in the range of $964 million to $966 million, representing year-over-year growth of 32% at the midpoint.
The Zacks Consensus Estimate for 2024 earnings is pegged at $3.20 per share, up 15.9% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 71.6%, on average.
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 of the Research Wizard today.
Disclosure: Officers, directors and 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 is available at: https://www.zacks.com/performance.