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Investors typically pay a valuation premium for liquidity, according to Goldman Sachs.
“By many measures, liquidity has improved dramatically during the past 40 years alongside technological and regulatory developments,” strategist David Kostin wrote in a note. “Cyclical liquidity has also improved.”
“S&P 500 index (SP500) (NYSEARCA:SPY) (IVV) (VOO) futures (SPX) average top-of-book size has improved from the 1st percentile in 2022 to the 40th percentile today, the highest level since 2021,” Kostin said. “Similarly, the average bid-ask spread among Russell 1000 (IWB) stocks equals just 1 bp.”
“Investors typically assign higher valuations to liquid stocks because of their low trading costs and flexibility in a variety of market environments,” he added. “Since 1976, the least liquid stocks have traded at an average P/B valuation multiple discount of 20% to the most liquid stocks.”
“This also creates an incentive for managements to improve the liquidity of their own shares.”
Goldman Sachs’ equity team updated their High Liquidity and Low Liquidity baskets.
New entrants in the High Liquidity basket of 50 stocks are Linde (LIN), Oracle (ORCL), Thermo Fisher (TMO), RTX (RTX), Micron (MU) and Nike (NKE).
The top 20 high liquidity stocks are:
- Nvidia (NVDA), illiquidity ratio 12-month average 0.1
- Apple (AAPL), 0.1
- Tesla (TSLA), 0.1
- Microsoft (MSFT), 0.1
- Amazon (AMZN), 0.2
- Meta Platforms (META), 0.2
- AMD (AMD), 0.3
- Alphabet (GOOGL), 0.3
- Visa (V), 0.5
- UnitedHealth (UNH), 0.5
- JPMorgan Chase (JPM), 0.5
- Berkshire Hathaway (BRK.B), 0.5
- Exxon Mobil (XOM), 0.5
- Johnson & Johnson (JNJ), 0.6
- Broadcom (AVGO), 0.6
- Netflix (NFLX), 0.6
- Procter & Gamble (PG), 0.6
- Eli Lilly (LLY), 0.6
- Walmart (WMT), 0.7
- Costco (COST), 0.7
The new entrants in the Low Liquidity basket are PHINIA (PHIN), WK Kellogg (KLG), Net Lease Office Properties (NLOP), Liberty Media (LLYVA), NCR Atleos (NATL), U-Haul (UHAL), Fortrea Holdings (FTRE), NovoCure (NVCR), ChargePoint Holdings (CHPT), BOK Financial (BOKF), agilon health (AGL), White Mountain Insurance (WTM), Tandem Diabetes Care (TNDM), ICU Medical (ICUI), Brighthouse Financial (BHF), QuantumScape (QS), Vestis (VSTS), Highwoods Properties (HIW) and Virtu Financial (VIRT).
The top 20 low liquidity stocks are:
- PHINIA (PHIN), illiquidity ratio 12-month average 5142
- WK Kellogg (KLG), 4797
- Net Lease Office Properties (NLOP), 4743
- Olaplex (OLPX), 827
- Ardagh Metal Packaging (AMBP), 447
- TFS Financial (TFSL), 293
- Liberty Media (LLYVA), 289
- agilon health (AGL), 96
- UWM Holdings (UWMC), 281
- Petco Health & Wellness (WOOF), 266
- Playtika (PLTK), 228
- NCR Atleos (NATL), 222
- Certara (CERT), 201
- U-Haul (UHAL), 190
- Mister Car Wash (MCW), 188
- Seaboard (SEB), 170
- Ubiquiti (UI), 169
- Fortrea (FTRE), 166
- Maravai Lifesciences (MRVI), 149
- NovoCure (NVCR), 143