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4 Top-Performing Liquid Stocks to Strengthen Portfolio Returns
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Investors looking for solid gains will likely benefit from adding stocks with sound liquidity, which 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 might 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 — 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 respective 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.)
These criteria have narrowed the universe of more than 7,700 stocks to only 13.
Here are four stocks out of the 13 that qualified for the screen:
Netflix, Inc (NFLX - Free Report) is considered a pioneer in the streaming space. At the end of first-quarter 2024, the company had 269.6 million paid subscribers globally. It added 9.33 million paid subscribers in first-quarter 2024, with a rise of 1% in average revenue per membership. Netflix is expected to continue dominating the streaming space, courtesy of its diversified and rich content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content. A clampdown on password-sharing and the introduction of paid sharing in more than 100 countries is expected to aid growth. However, intensifying competition in the streaming space from Apple, Amazon Prime Video, Disney+, Peacock and Paramount+ is a headwind. NFLX’s leveraged balance sheet and a higher streaming obligation are a concern. The Zacks Consensus Estimate for 2024 earnings is pegged at $18.31 per share, up 7.5% in the past 60 days. NFLX has a Growth Score of A and a trailing four-quarter earnings surprise of 9.3%, on average. Shares have appreciated 70.7% in the past year.
Alphabet Inc (GOOGL - Free Report) is one of the most ground-breaking companies in the modern technological age. In the past few years, the company evolved from a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. Alphabet’s robust cloud business is driving top-line expansion. Rapid data center growth will continue to bolster its presence in the cloud space. Improving Search performance on the back of major Search updates, along with momentum on YouTube, bodes well. Strengthening generative AI capabilities should aid business growth in the long term. However, sluggish Network advertisement business and competition in the cloud space from Microsoft and Amazon are a concern. The Zacks Consensus Estimate for its 2024 earnings is pegged at $7.61 per share, moving north by 12.4% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 11.3%, on average. Shares have gained 40.5% in the past year.
Spotify Technology S.A. (SPOT - Free Report) provides music streaming services. In the last reported quarter, revenues improved 20% year over year while total monthly active users increased 19%. Premium subscriptions registered 14% year-over-year growth. Management also highlighted its efforts at expanding the business. The company launched music video availability in 11 markets and Song Psychic availability in 64 markets. It also introduced the Audiobooks Access Tier to ad-supported music users across the United States. The Zacks Consensus Estimate for its 2024 earnings is pegged at $4.78 per share, moving north by 34.6% in the past 60 days. SPOT has a Growth Score of A. Shares have risen 105% in the past year.
Alpha and Omega Semiconductor Limited (AOSL - Free Report) specializes in designing, developing and supplying a broad range of power semiconductors worldwide, including Power MOSFET, HV Gate Drivers, SiC, IGBT, IPM, TVS, Power IC and Digital Power products. In the last reported quarter, AOSL reported revenues of $150.1 million, up 13.2 % year over year. The uptick was driven by its rich product portfolio and increasing Tier 1 customer base. For the current quarter ending in June, Alpha and Omega foresees revenues to be nearly $160 million (+/- $10 million). The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at earnings 58 cents per share, suggesting an improvement of 38.1% in the past 60 days. AOSL has a Growth Score of B and a trailing four-quarter earnings surprise of 44.9%, on average.
Get the remaining stocks on the list and start testing this and other ideas. 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.
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.
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4 Top-Performing Liquid Stocks to Strengthen Portfolio Returns
Investors looking for solid gains will likely benefit from adding stocks with sound liquidity, which 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 might 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 — 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 respective 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.)
These criteria have narrowed the universe of more than 7,700 stocks to only 13.
Here are four stocks out of the 13 that qualified for the screen:
Netflix, Inc (NFLX - Free Report) is considered a pioneer in the streaming space. At the end of first-quarter 2024, the company had 269.6 million paid subscribers globally. It added 9.33 million paid subscribers in first-quarter 2024, with a rise of 1% in average revenue per membership. Netflix is expected to continue dominating the streaming space, courtesy of its diversified and rich content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content. A clampdown on password-sharing and the introduction of paid sharing in more than 100 countries is expected to aid growth. However, intensifying competition in the streaming space from Apple, Amazon Prime Video, Disney+, Peacock and Paramount+ is a headwind. NFLX’s leveraged balance sheet and a higher streaming obligation are a concern. The Zacks Consensus Estimate for 2024 earnings is pegged at $18.31 per share, up 7.5% in the past 60 days. NFLX has a Growth Score of A and a trailing four-quarter earnings surprise of 9.3%, on average. Shares have appreciated 70.7% in the past year.
Alphabet Inc (GOOGL - Free Report) is one of the most ground-breaking companies in the modern technological age. In the past few years, the company evolved from a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. Alphabet’s robust cloud business is driving top-line expansion. Rapid data center growth will continue to bolster its presence in the cloud space. Improving Search performance on the back of major Search updates, along with momentum on YouTube, bodes well. Strengthening generative AI capabilities should aid business growth in the long term. However, sluggish Network advertisement business and competition in the cloud space from Microsoft and Amazon are a concern. The Zacks Consensus Estimate for its 2024 earnings is pegged at $7.61 per share, moving north by 12.4% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 11.3%, on average. Shares have gained 40.5% in the past year.
Spotify Technology S.A. (SPOT - Free Report) provides music streaming services. In the last reported quarter, revenues improved 20% year over year while total monthly active users increased 19%. Premium subscriptions registered 14% year-over-year growth. Management also highlighted its efforts at expanding the business. The company launched music video availability in 11 markets and Song Psychic availability in 64 markets. It also introduced the Audiobooks Access Tier to ad-supported music users across the United States. The Zacks Consensus Estimate for its 2024 earnings is pegged at $4.78 per share, moving north by 34.6% in the past 60 days. SPOT has a Growth Score of A. Shares have risen 105% in the past year.
Alpha and Omega Semiconductor Limited (AOSL - Free Report) specializes in designing, developing and supplying a broad range of power semiconductors worldwide, including Power MOSFET, HV Gate Drivers, SiC, IGBT, IPM, TVS, Power IC and Digital Power products. In the last reported quarter, AOSL reported revenues of $150.1 million, up 13.2 % year over year. The uptick was driven by its rich product portfolio and increasing Tier 1 customer base. For the current quarter ending in June, Alpha and Omega foresees revenues to be nearly $160 million (+/- $10 million). The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at earnings 58 cents per share, suggesting an improvement of 38.1% in the past 60 days. AOSL has a Growth Score of B and a trailing four-quarter earnings surprise of 44.9%, on average.
Get the remaining stocks on the list and start testing this and other ideas. 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 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.