Many investors are familiar with the idiom that “cash is king." It's typically a rallying cry for bearish investors when equity markets are in a downturn. The idea is that when stocks are down, cash is a safe place to park your capital until better days arrive.
The purpose of this presentation isn't to refute this timeless advice, but rather to help you think about it in a different way. We frequently remind investors that there's money to be made in any market. But when equities are falling, it requires investors to sharpen their focus. And cash plays a role.
Specifically, investors should look for companies that have a strong balance sheet that includes access to a lot of cash. Not only does this mean that these companies can manage their debt, but it also means that they can use that cash to add shareholder value either through stock buybacks or, preferably for income investors, a healthy and growing dividend.
With that in mind, here are seven cash rich stocks that offer investors a level of safety in any market.
Quick Links
- JPMorgan Chase
- Apple
- Microsoft
- Coca-Cola
- Pfizer
- Visa
- T. Rowe Price Group
#1 - JPMorgan Chase (NYSE:JPM)
If you’re looking for a secure, cash rich company it’s always good to look at JPMorgan Chase (NYSE:JPM). Shares of the banking giant are down 31% in 2022 despite the Federal Reserve’s aggressive pace of interest rate hikes that are likely to continue into 2023.
The thought is that demand for lending will dry up or companies will not meet more stringent lending requirements. And that means banks will have less revenue to offset having to pay large depositors higher interest.
That may be true, but if you’re looking for companies with ample cash reserves and the knowledge to deploy that cash for shareholder value, you’ll want to consider JPMorgan. The company posted $1.65 billion in free cash flow in the second quarter. That was a 20% year-over-year (YOY) decline. But for the first two quarters, FCF has increased by 185%.
And JPM stock is currently trading at a price-to-earnings (P/E) ratio of just 8.6 which is below the sector average and suggests that a lot of downside risk may already be priced in. The bank also has a generous 3.72% dividend yield and has been increasing its dividend for the last 10 years.
About JPMorgan Chase & Co.
JPMorgan Chase & Co operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM). The CCB segment offers deposit, investment and lending products, cash management, and payments and services; mortgage origination and servicing activities; residential mortgages and home equity loans; and credit cards, auto loans, leases, and travel services to consumers and small businesses through bank branches, ATMs, and digital and telephone banking.
Read More - Current Price
- $248.56
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $229.31 (7.7% Downside)
#2 - Apple (NASDAQ:AAPL)
Apple (NASDAQ:AAPL) is becoming a company that investors love to hate. In fact, Bank of America (NYSE:BAC) recently warned that the manufacturer of the iconic iPhone may not outperform the market. And investors are also mulling over the decision of several analysts to lower their price targets for the company.
Time will tell if those predictions are correct. But this article is about cash rich companies. Therefore, Apple has to be included on that list. In fact, one criticism of the tech giant is that it may have too much cash on its balance sheet. Case in point, in 2021 Apple posted over $92 billion of free cash flow.
But with the cost of capital on the rise, now is the time for a company to have cash in reserve. So even though Apple has a P/E ratio of over 23, it still looks like an attractive stock for investors to hold regardless of the current market conditions.
About Apple
Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
Read More - Current Price
- $229.87
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $235.25 (2.3% Upside)
#3 - Microsoft (NASDAQ:MSFT)
Microsoft (NASDAQ:MSFT) is another example of a growth company that is also one of the most cash rich companies for investors to keep in their portfolios. The company closed out their 2022 fiscal year with $65.14 billion in free cash flow. Not only was that higher than the prior year, it made it eight consecutive years in which the company has increased its FCF.
And there looks to be more where that came from. The company’s cloud business not makes up the largest piece of the company’s growing revenue. And investors will find that Microsoft is a competitor in many areas such as cybersecurity, gaming, and data storage all of which will continue to grow in the coming years.
MSFT stock currently has a P/E ratio of 24x and with a dividend that has a yield of just over 1%, Microsoft makes a case for being a safe stock.
About Microsoft
Microsoft Corporation develops and supports software, services, devices and solutions worldwide. The Productivity and Business Processes segment offers office, exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft viva, and Microsoft 365 copilot; and office consumer services, such as Microsoft 365 consumer subscriptions, Office licensed on-premises, and other office services.
Read More - Current Price
- $417.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $503.03 (20.6% Upside)
#4 - Coca-Cola (NYSE:KO)
Coca-Cola (NYSE:KO) is another stock that has to be included in the conversation of cash rich companies. In its most recent quarter, the company generated over $4 billion in FCF. In context, the company generated approximately $11.2 billion for all of 2021. The company has had no problems increasing its dividend when its free cash flow was at much lower levels so I see no reason that its streak of 60 years of dividend growth will be ending anytime soon.
The company has moved beyond its signature line of carbonated beverages to include juices, teas and coffee. All of those will work together to grow revenue and earnings over the next five years. And that will keep the company’s cash position in good shape.
The stock does trade over 22x earnings which may cause hesitation in some investors who don’t already have a position in the stock. But in terms of safe stocks, they don’t look much better than KO stock.
About Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.
Read More - Current Price
- $63.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.36 (13.2% Upside)
#5 - Pfizer (NYSE:PFE)
A growth investor may look at Pfizer (NYSE:PFE) and suggest that the party is over. And they may not be wrong. The company’s revenue and earnings soared to record highs in 2021 and they look to break those records in 2022. That’s the reward for being one of the winners in the Covid-19 vaccine race.
But the long-term narrative about the potential of mRNA vaccines is just beginning. And Pfizer has a pipeline in place that is well positioned to take advantage of that.
Plus, the company is a free cash flow machine at the moment. In its most recent quarter it posted $7.42 billion in FCF. That was down from the $10.76 billion it generated in the same quarter in 2021. But the company has still posted over $13 billion in free cash flow for the year which is far above the pace for any year in the past decade other than 2021.
Pfizer currently trades at a P/E ratio of 8.4x earnings which is lower than the sector average. The company also has a dividend with an attractive yield of 3.73% and a payout which has increased every year for the last 11 years.
About Pfizer
Pfizer Inc discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products in the United States, Europe, and internationally. The company offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic, migraine, and women's health under the Eliquis, Nurtec ODT/Vydura, Zavzpret, and the Premarin family brands; infectious diseases with unmet medical needs under the Prevnar family, Abrysvo, Nimenrix, FSME/IMMUN-TicoVac, and Trumenba brands; and COVID-19 prevention and treatment, and potential future mRNA and antiviral products under the Comirnaty and Paxlovid brands.
Read More - Current Price
- $25.63
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $32.92 (28.5% Upside)
#6 - Visa (NYSE:V )
Visa (NYSE:V) stock was one of the largest movers during the pandemic. And the stock soared even higher in 2021 as pent-up demand unleashed the power of the consumer. 2022 has brought the stock back down to earth. However, it’s still outperforming the broader market.
One reason is that, despite rising interest rates, credit card use is rising as consumers are navigating record-high inflation. It’s also a reflection of the continuing shift towards digital payment solutions. And although they make up a relatively small volume, Visa gets outsized benefits from international transactions which are showing signs of picking up.
Fundamentally, the company posted free cash flow of $3.2 billion in its most recent quarter. That was up 1.6% from 2022 which was a year in which the company posted a record $14.5 billion in FCF. The company also paid down its long-term debt by 12.5%.
Visa does come in a bit on the expensive side. Its P/E ratio of 26.26 is above the sector average. However the company may have the growth to back that up. And its dividend which has a yield of 0.84% has been increasing for the last 13 years and currently pays out $1.50 per share on an annual basis.
About Visa
Visa Inc operates as a payment technology company in the United States and internationally. The company operates VisaNet, a transaction processing network that enables authorization, clearing, and settlement of payment transactions. It also offers credit, debit, and prepaid card products; tap to pay, tokenization, and click to pay services; Visa Direct, a solution that facilitates the delivery of funds to eligible cards, deposit accounts, and digital wallets; Visa B2B Connect, a multilateral business-to-business cross-border payments network; Visa Cross-Border Solution, a cross-border consumer payments solution; and Visa DPS that provides a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions, and contact center services.
Read More - Current Price
- $309.93
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 25 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $321.74 (3.8% Upside)
#7 - T. Rowe Price Group (NASDAQ:TROW)
The last stock on my list may seem like an odd selection. T. Rowe Price (NASDAQ:TROW) is an investment banker. And right now, we’re told retail investors are exiting the market.
The firm itself seemed to confirm this report by stating that it’s assets under management (AUM) dropped from $1.34 trillion at the end of August to $1.23 trillion at the end of September. That makes the total reduction in AUM for 2022 a bearish 27%.
With all that said, if you’re reading this then you’re aware that there are many investors who are still in the market. And the ones that left are likely to come back at some point.
In the meantime, the company continues to have strong free cash flow. For the first two quarters of 2022, the company generated $1.31 billion in FCF. That’s down from the $1.9 billion it generated in the same two quarters of 2021. But it’s already at the level for the full-year in 2019 and nearly the full-year of 2018. Plus, the company has zero debt.
And for those that do put value in price-to-earnings ratio, TROW stock is trading at 9.3x earnings. Plus the company has a dividend yield of 4.97% as of this writing. The payout is currently $4.80 per share, and the company has been increasing its dividend for the last 36 consecutive years.
About T. Rowe Price Group
T. Rowe Price Group, Inc is a publicly owned investment manager. The firm provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. It launches and manages equity and fixed income mutual funds. The firm invests in the public equity and fixed income markets across the globe.
Read More - Current Price
- $119.84
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 7 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $115.55 (3.6% Downside)
The goal of every investor should be to build wealth slowly. If you're an investor with some time on your side, staying in the market through its ups and downs is historically the correct strategy.
With that said, volatile markets remind investors to pay attention to the quality of the companies in their portfolio. The ability to generate predictable revenue and earnings, even if at slightly lower levels will ensure that these companies have the cash reserves to add shareholder value no matter what direction the economy is moving in.
Of course, it also helps that these companies will generally have strong fundamentals including relatively low debt, and a stainable, growing dividend yield. When these factors are in play, investors can be less concerned about the company's price-to-earnings ratio – the relevance of which depends significantly on what sector a company is in.
Even if you're not looking to add new stocks to your portfolio right now, it's important for every investor to keep a watch list for when the time is right.
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