Market Overview

10 Stocks To Buy With Low Debt And High Liquidity

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10 Stocks To Buy With Low Debt And High Liquidity

Given the near-term economic uncertainty surrounding the COVID-19 outbreak, investors have been shifting their focus from growth stocks to stocks that have the balance sheets and liquidity to weather the current downturn.

Assuming the economy gets back to normal at some point in the relatively near future, the name of the game between now and then may simply be survival.

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Balance Sheet Analysis

For investors, the safest place to be is in stocks with plenty of liquidity and relatively low debt on their balance sheets. Two popular ways for traders to measure liquidity are the quick ratio and the current ratio.

Current ratio is a measure of a company’s ability to pay its current liabilities and obligations due within one year. Mathematically, current ratio is a company’s current assets divided by its current liabilities. Current assets include all assets that could reasonably be converted into cash within a year, such as marketable securities, prepaid expenses, and inventory.

Quick ratio is a very similar metric for measuring short-term liquidity. To calculate the quick ratio, first add up a company’s cash, cash equivalents, current receivables and short-term investments. Take that sum and divide it by current liabilities to get the quick ratio. The primary difference between the quick ratio and current ratio is that the quick ratio includes only assets that could be converted into cash within 90 days, such as cash and cash equivalents, marketable securities and accounts receivable.

Stocks with current ratios and quick ratios above 3 are considered to be relatively liquid.

Another consideration when looking for companies that are well-equipped to weather the COVID-19 economic shutdown is debt. Rather than looking just at debt, debt-to-equity ratio is a common way to measure a company’s financial leverage. The higher the debt-to-equity ratio, the more a company is reliant on debt to operate its business. Debt-to-equity ratio is simply a company’s total liabilities divided by total shareholders’ equity.

See Also: What Does It Mean That The Stock Market Is A Leading Economic Indicator?

Debt And Liquidity Screen

Benzinga screened all the S&P 500 companies looking for stocks with quick and current ratios above 3 and long-term and short-term debt-to-equity ratios of under 0.1. Here are the 10 stocks that made the cut:

  • IPG Photonics Corporation (NASDAQ: IPGP)
  • Skyworks Solutions Inc (NASDAQ: SWKS)
  • Arista Networks Inc (NYSE: ANET)
  • ABIOMED, Inc. (NASDAQ: ABMD)
  • Incyte Corporation (NASDAQ: INCY)
  • Intuitive Surgical, Inc. (NASDAQ: ISRG)
  • Facebook, Inc. (NASDAQ: FB)
  • Regeneron Pharmaceuticals Inc (NASDAQ: REGN)
  • Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX)
  • Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG)

Benzinga’s Take

Current ratio, quick ratio and debt-to-equity ratio can give a quick glimpse at the health of a company’s balance sheet, but they are only only three measures of a company’s health. To get a full picture of a business, smart investors incorporate all available information and dozens of financial metrics into their analysis of a stock.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

 

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