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4 Promising Liquid Stocks to Snap Up for Higher Returns
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A company with strong liquidity has the potential to provide impressive returns as liquidity supports its business growth.
Liquidity indicates a company’s ability to clear debt obligations by converting its assets into liquid cash and equivalents. However, investors should be careful about investing in a stock with high liquidity level as it may also imply that the company is failing to utilize its assets competently.
Therefore, it is advisable to consider a company’s efficiency level in addition to its liquidity for identifying potential winners. An efficient company with a favorable liquidity level may prove to be a lucrative addition to one’s portfolio.
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 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 indicate that the company is in good financial shape. It may also suggest that the company 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, as it takes into account cash and cash equivalents as well as 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 point toward sound financials, a higher number may indicate inefficiency in cash utilization.
A ratio greater than 1 is desirable at all times 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.)
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 more than 7,700 stocks to only seven.
Here are four of the seven stocks that qualified the screen:
Headquartered at Lake Forest, IL, Packaging Corporation of America (PKG - Free Report) is the third-largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. The company operates eight mills and 90 corrugated products manufacturing plants. Packaging Corporation continues to benefit from robust packaging demand backed by e-commerce and rising requirement for the packaging of food, beverages and medicines. The Zacks Consensus Estimate for its 2022 earnings is pegged at $10.47 per share, up 11.9% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 22.8%, on average.
Based in Nashville, TN, Louisiana-Pacific Corporation (LPX - Free Report) is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. Currently, the company operates 20 modern, strategically located facilities in the United States and Canada, two facilities in Chile and one facility in Brazil. It also operates facilities through a joint venture. The company’s products are used primarily in new home construction, repair as well as remodeling and outdoor structures. The company is reaping benefits from solid demand from the U.S. residential market. Also, strategic business transformation, effective cash management and inorganic moves are likely to boost performance in the future. The Zacks Consensus Estimate for 2021 earnings is pegged at $13.54 per share, up 1% in the past 60 days. Louisiana-Pacific has a Growth Score of A and a trailing four-quarter earnings surprise of 10.5%, on average.
Headquartered in Los Angeles, CA, Houlihan Lokey (HLI - Free Report) is a prominent independent investment bank that offers capital markets, mergers and acquisitions, financial restructurings and financial and valuation advisory services to clients like corporations, financial sponsors and government agencies across the globe. Houlihan Lokey recently concluded the acquisition of GCA Corporation. The acquisition will help the company to boost its M&A advisory services and expand its presence in the Asia-Pacific region. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $6.92 per share, up 9.5% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 39.5%, on average.
Norway-based Equinor ASA (EQNR - Free Report) is one of the premier integrated energy companies in the world, with operations spreading across 30 countries. In Europe, the company is the second-largest supplier of natural gas. Equinor is also a leading seller of crude oil. Over the years, the company has developed its expertise to expand upstream operations outside of conventional offshore resources to the prolific shale oil and gas plays. To combat climate change, the integrated energy company is investing actively in renewable energy projects, comprising power generation from solar and wind energy. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.28 per share, up 5.8% in the past 60 days. The company has a Growth Score of A.
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. 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.
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.
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4 Promising Liquid Stocks to Snap Up for Higher Returns
A company with strong liquidity has the potential to provide impressive returns as liquidity supports its business growth.
Liquidity indicates a company’s ability to clear debt obligations by converting its assets into liquid cash and equivalents. However, investors should be careful about investing in a stock with high liquidity level as it may also imply that the company is failing to utilize its assets competently.
Therefore, it is advisable to consider a company’s efficiency level in addition to its liquidity for identifying potential winners. An efficient company with a favorable liquidity level may prove to be a lucrative addition to one’s portfolio.
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 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 indicate that the company is in good financial shape. It may also suggest that the company 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, as it takes into account cash and cash equivalents as well as 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 point toward sound financials, a higher number may indicate inefficiency in cash utilization.
A ratio greater than 1 is desirable at all times 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 down the universe of more than 7,700 stocks to only seven.
Here are four of the seven stocks that qualified the screen:
Headquartered at Lake Forest, IL, Packaging Corporation of America (PKG - Free Report) is the third-largest producer of containerboard products and a leading producer of uncoated freesheet paper in North America. The company operates eight mills and 90 corrugated products manufacturing plants. Packaging Corporation continues to benefit from robust packaging demand backed by e-commerce and rising requirement for the packaging of food, beverages and medicines. The Zacks Consensus Estimate for its 2022 earnings is pegged at $10.47 per share, up 11.9% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 22.8%, on average.
Based in Nashville, TN, Louisiana-Pacific Corporation (LPX - Free Report) is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. Currently, the company operates 20 modern, strategically located facilities in the United States and Canada, two facilities in Chile and one facility in Brazil. It also operates facilities through a joint venture. The company’s products are used primarily in new home construction, repair as well as remodeling and outdoor structures. The company is reaping benefits from solid demand from the U.S. residential market. Also, strategic business transformation, effective cash management and inorganic moves are likely to boost performance in the future. The Zacks Consensus Estimate for 2021 earnings is pegged at $13.54 per share, up 1% in the past 60 days. Louisiana-Pacific has a Growth Score of A and a trailing four-quarter earnings surprise of 10.5%, on average.
Headquartered in Los Angeles, CA, Houlihan Lokey (HLI - Free Report) is a prominent independent investment bank that offers capital markets, mergers and acquisitions, financial restructurings and financial and valuation advisory services to clients like corporations, financial sponsors and government agencies across the globe. Houlihan Lokey recently concluded the acquisition of GCA Corporation. The acquisition will help the company to boost its M&A advisory services and expand its presence in the Asia-Pacific region. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $6.92 per share, up 9.5% in the past 60 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 39.5%, on average.
Norway-based Equinor ASA (EQNR - Free Report) is one of the premier integrated energy companies in the world, with operations spreading across 30 countries. In Europe, the company is the second-largest supplier of natural gas. Equinor is also a leading seller of crude oil. Over the years, the company has developed its expertise to expand upstream operations outside of conventional offshore resources to the prolific shale oil and gas plays. To combat climate change, the integrated energy company is investing actively in renewable energy projects, comprising power generation from solar and wind energy. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.28 per share, up 5.8% in the past 60 days. The company has a Growth Score of A.
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. 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.