Add these 4 top-ranked liquid stocks for healthy gains – October 21, 2022

Building a portfolio with stocks that have solid levels of liquidity will likely work in favor of investors looking for healthy returns. Liquidity measures a company’s ability to honor its short-term debts. Stocks with high levels of liquidity have always been sought after, due to their potential to provide maximum returns.

However, one must be careful before investing in a stock with a high level of liquidity. High liquidity may also indicate that the company cannot use its assets competently.

In addition to having sufficient cash, an investor may also consider a company’s capital deployment capabilities before investing in the stock. A healthy company with favorable liquidity can be a profitable choice for its portfolio.

Measures to identify liquid inventory

Current ratio: It measures current assets against current liabilities. The ratio assesses a company’s potential to service its short-term and long-term debts. A current ratio – also called working capital ratio – below 1 indicates that the company has more liabilities than assets. However, a high cash ratio does not always mean that the company is in good financial health. It may also suggest that the company has not used its assets significantly. Therefore, a range of 1 to 3 is considered ideal.

Quick report: Unlike the current ratio, the quick ratio – also known as the “acid-test ratio” or the “quick asset ratio” – reflects a company’s ability to pay its short-term obligations. It considers inventories excluding current assets in relation to current liabilities. Like the current gear, a fast gear greater than 1 is desirable.

Cash ratio: This is the most conservative ratio of the three, considering cash and cash equivalents and invested funds versus current liabilities. It measures a company’s ability to honor its current debts using the most liquid assets. Although a cash ratio above 1 may suggest healthy finances, a higher number may indicate inefficiency in the use of cash.

A ratio greater than 1 is always desirable but does not always represent a company’s financial situation.

Screening Parameters

To choose the best of the lot, we’ve added asset utilization – a widely used measure of a company’s efficiency – as one of the selection criteria. Asset utilization is the ratio of total sales over the past 12 months to the average of the past four quarters of total assets. Although this ratio varies by industry, companies with a higher ratio than their respective industries can be considered efficient.

To ensure that these liquid and efficient stocks have solid growth potential, we have added our own Growth Style Score on the screen.

Current Ratio, Quick Ratio and Cash Ratio between 1 and 3 (Although liquidity ratios greater than 1 are desirable, significantly high ratios may indicate inefficiency.)

Asset utilization above industry average (A higher-than-industry-average asset utilization indicates a company’s efficiency.)

Zacks Rank equal to No. 1 (Only stocks rated Strong Buy can pass). You can see the full 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 Zacks rank #1 or 2 easily beat other stocks.)

These criteria reduced the universe from over 7,700 stocks to just 7.

Here are four of the seven stocks that qualified for the screen:

Oxford Industries (OXM Free Report) is an apparel company that designs, sources, markets and distributes products bearing the trademarks of its owned and licensed brands. Oxford brands include Tommy Bahama, Johnny Was, Duck Head, Lilly Pulitzer, Southern Tide and The Beaufort Bonnet Company. The company has granted licenses to selected third parties to produce and sell certain categories of products under its Lilly Pulitzer and Tommy Bahama brands. Zacks’ consensus estimate for fiscal 2023 earnings is pegged at $10.48 per share, up 6.2% over the past 60 days. The company has a growth score of A and a trailing four-quarter earnings surprise of 91.1% on average.

Based in Israel Perion network (PERI Free Report) is a technology company that provides online advertising and search monetization solutions to brands and publishers. The company is committed to delivering data-driven execution, from high-impact ad formats to branded search and a unified social and mobile programmatic platform. Zacks’ consensus estimate for 2022 earnings is pegged at $2.00 per share, up 7% over the past 60 days. The company has a growth score of A and a trailing four-quarter earnings surprise of 39.4% on average.

Pure storage (PSTG Free Report) provides all-flash software-defined solutions that are exceptionally fast and cloud-enabled for customers. Pure Storage’s performance was driven by subscription services revenue momentum and revenue growth in the domestic and international segments. Subscription services revenue benefited from robust adoption of Evergreen subscription services and synergies from the acquisition of Portworx. The strength of the FlashArray and FlashBlade businesses and strong growth prospects in the data-driven artificial intelligence (AI) and machine learning (ML) markets bode well. Zacks’ consensus estimate for fiscal 2023 earnings is pegged at $1.18 per share, up 24.2% over the past 60 days. PSTG has a growth score of A and a trailing four-quarter earnings surprise of 171.8% on average.

Aerie Pharmaceuticals (AERI Free Report) is a commercial-stage company focused on developing and commercializing therapies for eye diseases, including glaucoma and other eye diseases. Glaucoma is one of the largest segments of the global ophthalmology market. Aerie’s eye medications, Rhopressa and Rocklatan, are gaining traction slowly and steadily. Their approval in additional geographies will help overall sales. The Company’s progress with other ophthalmology candidates in its pipeline has been impressive so far and the successful development of these will strengthen its pipeline. Strategic buyouts bolstered the pipeline with promising candidates. Aerie’s retina programs continue to progress. The Zacks consensus estimate for 2022 is pegged at a loss of $1.82 per share, down 1 cent over the past 60 days. AERI has a growth score of A and a trailing four-quarter earnings surprise of 70.3% on average.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold securities short and/or hold long and/or short positions in the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

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