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Add These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
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The liquidity of a stock is an important parameter that investors should consider while adding stocks to their investment portfolio. Liquidity primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.
These stocks are always in demand owing to their potential to provide maximum returns. However, one should be alert enough before investing in such stocks. While a high liquidity level may imply that the company is clearing its dues faster than peers, it may also indicate that the company is failing to use its assets efficiently.
Hence, one may consider a company’s efficiency level in addition to its liquidity to identify prospective 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 eight.
Here are four stocks out of the eight that qualified for the screen:
Abercrombie & Fitch Co. (ANF - Free Report) is a specialty retailer of premium, high-quality casual apparel for men, women and kids. It has a vast 759-store network across North America, Europe, Asia and the Middle East. It operates a few e-commerce sites, including www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com.
ANF is gaining from continued momentum across its brands — Hollister and Abercrombie. In first-quarter fiscal 2024, net sales increased 12% year over year at Hollister and 31% at Abercrombie. It is also focused on making strategic investments across stores, digital and technology to bolster itself long-term. Management anticipates fiscal 2024 net sales to increase 10% year over year from $4.3 billion. For second-quarter fiscal 2024, net sales are projected to be up in the mid-teens from the $935 million reported in the year-ago period.
However, ANF has been witnessing elevated operating costs on higher technology expenses and incentive-based compensation. Also, inflationary pressures are a concern. The Zacks Consensus Estimate for its fiscal 2024 earnings is pegged at $9.25 per share, unchanged in the past 30 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 210.3%, on average.
American Public Education, Inc (APEI - Free Report) is an online and campus-based post-secondary education provider. The company serves approximately 125,000 students through three subsidiary institutions — American Public University System (APUS), Rasmussen University (RU) and Hondros College of Nursing (HCN).
The company is gaining from consistent enrolment growth at APUS and HCN segments, tuition and increased fees. Focus on cost-saving initiatives and affordable tuition bodes well. During the first quarter of 2024, the EBITDA margin expanded 630 basis points year over year. This positive trend in margin growth is expected to continue in the remaining 2024, owing to modest tuition increases combined with increased focus on marketing spend and other costs. However, the persistent dismal performance of the RU segment due to a change in student mix to more online students with lower revenue per enrolment is concerning.
The Zacks Consensus Estimate for APEI’s 2024 bottom line is pegged at earnings of 72 cents per share, suggesting an improvement from a loss of $2.93 reported in the previous year. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 138.2%, on average.
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 $5.02 per share, moving north by 1.8% in the past 60 days. SPOT has a Growth Score of A. Shares have risen 68.6% in the past year.
Oddity Tech Ltd. (ODD - Free Report) operates as a consumer tech-focused company and is headquartered in New York City. It helps to build digital-first brands to take on the offline beauty and wellness industries. ODD’s AI-powered online platform utilizes data science to identify consumer requirements (in terms of beauty and wellness products) and develop new solutions. The company has 50 million users.
Steady momentum across both IL MAKIAGE and SpoiledChild brands is driving top-line expansion. In the last reported quarter, net revenues of $212 million increased 28% year over year. ODD expects net revenues to be between $626 million and $635 million for 2024.
The Zacks Consensus Estimate for ODD’s 2024 bottom line is pegged at earnings of $1.66 per share, suggesting an improvement from earnings of $1.31 reported in the previous year. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 35.4%, 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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Add These 4 Top-Ranked Liquid Stocks to Strengthen Portfolio
The liquidity of a stock is an important parameter that investors should consider while adding stocks to their investment portfolio. Liquidity primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.
These stocks are always in demand owing to their potential to provide maximum returns. However, one should be alert enough before investing in such stocks. While a high liquidity level may imply that the company is clearing its dues faster than peers, it may also indicate that the company is failing to use its assets efficiently.
Hence, one may consider a company’s efficiency level in addition to its liquidity to identify prospective 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 eight.
Here are four stocks out of the eight that qualified for the screen:
Abercrombie & Fitch Co. (ANF - Free Report) is a specialty retailer of premium, high-quality casual apparel for men, women and kids. It has a vast 759-store network across North America, Europe, Asia and the Middle East. It operates a few e-commerce sites, including www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com.
ANF is gaining from continued momentum across its brands — Hollister and Abercrombie. In first-quarter fiscal 2024, net sales increased 12% year over year at Hollister and 31% at Abercrombie. It is also focused on making strategic investments across stores, digital and technology to bolster itself long-term. Management anticipates fiscal 2024 net sales to increase 10% year over year from $4.3 billion. For second-quarter fiscal 2024, net sales are projected to be up in the mid-teens from the $935 million reported in the year-ago period.
However, ANF has been witnessing elevated operating costs on higher technology expenses and incentive-based compensation. Also, inflationary pressures are a concern. The Zacks Consensus Estimate for its fiscal 2024 earnings is pegged at $9.25 per share, unchanged in the past 30 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 210.3%, on average.
American Public Education, Inc (APEI - Free Report) is an online and campus-based post-secondary education provider. The company serves approximately 125,000 students through three subsidiary institutions — American Public University System (APUS), Rasmussen University (RU) and Hondros College of Nursing (HCN).
The company is gaining from consistent enrolment growth at APUS and HCN segments, tuition and increased fees. Focus on cost-saving initiatives and affordable tuition bodes well. During the first quarter of 2024, the EBITDA margin expanded 630 basis points year over year. This positive trend in margin growth is expected to continue in the remaining 2024, owing to modest tuition increases combined with increased focus on marketing spend and other costs. However, the persistent dismal performance of the RU segment due to a change in student mix to more online students with lower revenue per enrolment is concerning.
The Zacks Consensus Estimate for APEI’s 2024 bottom line is pegged at earnings of 72 cents per share, suggesting an improvement from a loss of $2.93 reported in the previous year. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 138.2%, on average.
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 $5.02 per share, moving north by 1.8% in the past 60 days. SPOT has a Growth Score of A. Shares have risen 68.6% in the past year.
Oddity Tech Ltd. (ODD - Free Report) operates as a consumer tech-focused company and is headquartered in New York City. It helps to build digital-first brands to take on the offline beauty and wellness industries. ODD’s AI-powered online platform utilizes data science to identify consumer requirements (in terms of beauty and wellness products) and develop new solutions. The company has 50 million users.
Steady momentum across both IL MAKIAGE and SpoiledChild brands is driving top-line expansion. In the last reported quarter, net revenues of $212 million increased 28% year over year. ODD expects net revenues to be between $626 million and $635 million for 2024.
The Zacks Consensus Estimate for ODD’s 2024 bottom line is pegged at earnings of $1.66 per share, suggesting an improvement from earnings of $1.31 reported in the previous year. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 35.4%, 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.