4 Top-Performing Liquid Stocks to Boost Portfolio Returns

Creating a portfolio with favorable liquidity stocks is likely to work in favor of investors seeking healthy returns.

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.

One needs to exercise caution before investing in such stocks. High liquidity may indicate that the company is clearing its dues faster than its peers. However, it may also suggest that the company cannot utilize its assets competently.

Hence, an investor may consider a company’s efficiency level in addition to its 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 10.

Here are four stocks out of the 10 that qualified for the screen:

Netflix, Inc NFLX is considered a pioneer in the streaming space. At the end of the first quarter of 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 subscription. The company attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general. Netflix is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content. However, stiff competition in the streaming space from the likes of Apple, Amazon Prime Video, Disney+, Peacock and Paramount+ is a headwind. NFLX’s leveraged balance sheet and a higher streaming obligation are concerns. The Zacks Consensus Estimate for 2024 earnings is pegged at $18.30 per share, up 7.3% in the past 60 days. NFLX has a Growth Score of A and a trailing four-quarter earnings surprise of 9.3%, on average.

Alphabet Inc GOOGL is one of the most ground-breaking companies in the modern technological age. Over the last few years, the company has evolved from primarily being a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. GOOGL’s first-quarter results were driven by solid momentum in the cloud business. Expanding data centers 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, contributed 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 $7.57 per share, moving north 11.8% 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.

Spotify Technology S.A. SPOT 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 33.9% in the past 60 days. SPOT has a Growth Score of A.

Vimeo, Inc VMEO provides video software solutions. The company's platform enables any professional, team and organization to unlock the power of video to create, collaborate and communicate. It has a more than 300-million strong user base. The Zacks Consensus Estimate for 2024 earnings is pegged at earnings 3 cents per share, suggesting an improvement from an expectation of breakeven earnings in the past 60 days. VMEO has a Growth Score of B and a trailing four-quarter earnings surprise of 352.7%, 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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