Yahoo Finance Add These 4 Top-Ranked Liquid Stocks for Strong Returns
The liquidity of a stock is an important parameter that investors should consider while adding stocks to their portfolios. Liquidity primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.
These stocks have always been 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 for identifying 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 16.
Here are four stocks out of the 16 that qualified for the screen:
Abercrombie & Fitch Co. ANF operates as 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 both its brands — Hollister and Abercrombie. In first-quarter fiscal 2024, net sales improved 12% year over year at Hollister and 31% at Abercrombie. It has also been focused on making strategic investments across stores, digital and technology to bolster itself for the long term. Management anticipates fiscal 2024 net sales to increase 10% year over year from $4.3 billion. For the second quarter of fiscal 2024, net sales are projected to be up in the mid-teens from the $935 million reported in the year-ago period.
However, Abercrombie has been witnessing elevated operating costs on higher technology expenses and incentive-based compensation. Also, inflationary pressures are concerning. The Zacks Consensus Estimate for its fiscal 2024 earnings is pegged at $9.26 per share, up 23.1% in the past 60 days. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 210.3%, on average. Shares have skyrocketed 440.5% in the past year.
Alphabet Inc GOOGL is one of the most ground-breaking companies in the modern technological age. In the past few years, the company has evolved from being a search engine to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. Alphabet’s robust cloud business is driving its top line. 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 concerns. The Zacks Consensus Estimate for its 2024 earnings is $7.60 per share, moving north by 12.1% 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 43.8% in the past year.
Dropbox, Inc. DBX offers a cloud-based platform that businesses and individuals can create, access and share digital content globally. It has a 700-million-strong registered user base across approximately 180 countries. Dropbox is benefiting from an expanding portfolio with the addition of Dropbox AI. An increasing user base and strong average revenue per paying user (ARPU) growth are the other tailwinds. The company exited first-quarter 2024 with 18.16 million paying users, while the ARPU was $139.59 compared with $138.97 in the year-ago quarter.
The Zacks Consensus Estimate for its 2024 earnings is pegged at $2.12 per share, up 5.5% in the past 60 days. DBX has a Growth Score of A and a trailing four-quarter earnings surprise of 13.1%, on average.
Alpha and Omega Semiconductor Limited AOSL 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 quarter ending in June, Alpha and Omega foresees revenues of nearly $160 million (+/- $10 million). The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at earnings of 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.
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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.
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Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
Alpha and Omega Semiconductor Limited (AOSL) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Dropbox, Inc. (DBX) : Free Stock Analysis Report
