Investors looking for solid gains should benefit from adding stocks with sound liquidity, which encourages business growth. Liquidity measures a company’s capability to meet short-term debt obligations. Stocks with high liquidity levels have always been in demand, owing to their potential to provide maximum returns.
Investors can consider adding stocks like American Superconductor Corporation AMSC, Angi Inc. ANGI, Sezzle Inc. SEZL and Oddity Tech Ltd. ODD to their portfolios to boost 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 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 (Buy).
These criteria have narrowed the universe of more than 7,700 stocks to only seven.
Here are four of the seven stocks that qualified the screen:
American Superconductor Corporation is a provider of megawatt-scale power resiliency solutions. It develops and sells a wide range of products and solutions based on power electronic systems and high-temperature superconductor wires that improve the efficiency, reliability and quality of electricity during its generation, transmission, distribution and usage. It operates under two segments namely Grid and Wind.
In the last reported quarter, revenues came in at $54.5 million, up 60.3% year over year, driven by the acquisition of NWL and higher shipments of new energy power systems and electrical control system shipments. AMSC had $200 million in 12-month backlog and $300 million in total backlog.
Continued momentum across semiconductors, renewables, mining and metals and military end-markets bodes well. For the third quarter, AMSC expects revenues in the range of $55 million to $60 million.
The Zacks Consensus Estimate for fiscal 2024 earnings is pegged at 50 cents per share, up 61.3% in the past 30 days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 328.2%, on average.
Angi is a platform that connects homeowners with home service professionals. In the last reported quarter, ANGI’s monetized transactions per service request increased 26% to 1.53. International revenues were up 9% due to increasing service professional network and higher revenue-per-service-professional. However, Ads and Leads revenue fell 17%, affected by ongoing user-experience enhancements and reduced sales and marketing spend.
The Zacks Consensus Estimate for 2024 earnings is pegged at 4 cents per share, improving from 1 cent in the past 60 days. ANGI has a Growth Score of B and a trailing four-quarter earnings surprise of 150%, on average.
Sezzle is a fintech company that operates a digital payment platform mainly across the United States and Canada. This platform offers customers interest-free installment plans at online stores and certain in-store locations. In the last reported quarter, revenues jumped 71.3% year over year due to an increasing subscriber base. As of Sept. 30, 2024, SEZL had 529,000 active subscribers across Anywhere and Premium platforms.
Management raised the top and bottom-line outlook for 2024 owing to strong growth and the inclusion of the newly launched banking program with WebBank. It expects total revenue growth of 55% compared with 35-40% mentioned earlier. Earnings per share are expected to be $12.05 compared with $9.25 stated earlier. The Zacks Consensus Estimate for 2024 earnings is pegged at $9.78 per share, up 45.8% in the past 60 days. The company has a Growth Score of B.
Oddity 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 $119 million increased 26% year over year. Driven by strong year-to-date performance and sustained high repeat rates, the company revised its outlook upward for 2024. ODD now expects net revenues between $642 million and $644 million for 2024 (previous projection: $633-$640 million).
The Zacks Consensus Estimate for ODD’s 2024 bottom line is pegged at earnings of $1.87 per share, suggesting an improvement from earnings of $1.31 reported in the previous year. The company has a Growth Score of B and a trailing four-quarter earnings surprise of 33.5%, 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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