5 Top Liquid Stocks for a Winning Portfolio

Advertisement

Liquidity of a stock is an important yardstick that investors often ignore. It primarily indicates a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.

5 Top Liquid Stocks for a Winning Portfolio

Source: Shutterstock

These stocks have always been in demand due to their potential to provide maximum returns. However, one should exercise caution before investing in such stocks. While a high liquidity level may imply that a company is meeting its obligations at a faster rate than its peers, it may also indicate that the company is failing to use its assets efficiently.

Hence, one may consider the efficiency level of a company in addition to its liquidity to identify potential winners.

Measures to Identify Liquid Stocks

Current Ratio: It measures current assets relative to current liabilities. This ratio is used for measuring a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio — also known as working capital ratio — below 1 indicates that the company has more liabilities than assets.

However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered ideal.

Quick Ratio: Unlike current ratio, quick ratio – also called “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. Like the current ratio, a quick ratio of greater than 1 is desirable.

Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to meet its current debt obligations using the most liquid of assets. Though a cash ratio higher than 1 may point to sound financials, a higher number may indicate inefficiency in cash utilization.

So, a ratio greater than 1 is desirable at all times but may not always appropriately represent a company’s financial condition.

Screening Parameters

In order to pick the best of the lot, we have added asset utilization, which is a widely used measure of a company’s efficiency, as one of the screening criteria. Asset utilization is the ratio of total sales over 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.

In order 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 of greater than 1 are desirable, significantly high ratios may indicate inefficiency.)

Asset utilization greater than 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).

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 down the universe of over 7,700 stocks to only 11.

Here are five of the 11 stocks that qualified the screen:

Top Liquid Stocks for a Winning Portfolio: Mellanox Technologies Ltd. (MLNX)

Sunnyvale, CA-based Mellanox Technologies Ltd. (NASDAQ:MLNX) is a leading supplier of semiconductor-based, interconnect products to world-class server, storage, and infrastructure OEMs servicing Fortune 500 data centers, the world’s most powerful supercomputers, and mission critical embedded applications.

The company has a Growth Score of A and an average four-quarter positive earnings surprise of 12.98%. The Zacks Consensus Estimate for fiscal 2018 earnings remained steady at $4.34 in the last 30 days.

Top Liquid Stocks for a Winning Portfolio: Logitech International SA (LOGI)

Switzerland-based Logitech International SA (NASDAQ:LOGI) is a global leader in peripherals for personal computers and other digital platforms, which develops and markets innovative products for PC navigation, Internet communications, digital music, home-entertainment control, video security, interactive gaming and wireless devices.

The company has a Growth Score of B and an average four-quarter positive earnings surprise of 14.84%. The Zacks Consensus Estimate for fiscal 2019 earnings remained unchanged at $1.79 in the last 30 days.

Top Liquid Stocks for a Winning Portfolio: Cadence Design Systems Inc (CDNS)

Based in San Jose, CA, Cadence Design Systems Inc (NASDAQ:CDNS) offers products and tools that help customers to design electronic products. Through System Design Enablement (SDE) strategy, the company offers software, hardware, services and reusable IC design blocks (IPs) to electronic systems and semiconductor customers.

The company has a Growth Score of B and an average four-quarter positive earnings surprise of 2.81%. The Zacks Consensus Estimate for 2018 earnings remained stable at $1.63 per share in the last 30 days.

Top Liquid Stocks for a Winning Portfolio: Citrix Systems, Inc. (CTXS)

Headquartered in Fort Lauderdale, Citrix Systems, Inc. (NASDAQ:CTXS) is a leading provider of virtualization, networking and cloud computing solutions to more than 230,000 organizations worldwide. The company has a Growth Score of B and delivered an average positive earnings surprise of 11.99% for the trailing four quarters.

The Zacks Consensus Estimate for fiscal 2018 earnings of $5.27 per share remained unchanged in the last 30 days.

Top Liquid Stocks for a Winning Portfolio: Mastercard Inc (MA)

Headquartered in Purchase, NY, Mastercard Inc (NYSE:MA) is a leading global payment solutions company. Mastercard has a Growth Score of B and an average four-quarter positive earnings surprise of 8.89%. The Zacks Consensus Estimate for fiscal 2018 earnings improved by a penny to $6.31 in the last 30 days.

Get the rest of the 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. It’s 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 that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/5-top-liquid-stocks-winning-portfolio-ggsyn/.

©2024 InvestorPlace Media, LLC