7 Cash Stocks to Invest in As Markets Turn Negative
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For the past few weeks, markets have head higher on the heels of a rumored V-shaped recovery. But, with fears of a second novel coronavirus wave now making headlines, investors have cooled off a bit. We may not be out of the woods just yet, which means it may pay to pivot towards these more resilient stocks like cash stock.
These rich names come with enough liquidity to ride out what could be continued tough times. That said, though, where’s a strong area to look for such opportunities?
Well, as Laura Gonzalez — Ph.D, Associate Professor of Finance at California State University, Long Beach — recently said in a email to InvestorPlace:
“There is no doubt markets need reassurance about the capacity of the U.S. to remain open. Big corporations, with still plenty of cash, drive the stock market. They have not been hit by C-19 yet as much as small businesses, and shares look attractive in comparison to bonds given the historically low rates.”
In other words, expect cash-rich names like Alphabet (NASDAQ:GOOG NASDAQ:GOOGL) and Facebook (NASDAQ:FB) to remain strong buys. However, big names like these aren’t the only cash stocks to consider. There are quite a few smaller, less-known opportunities. They may not be strong, defensive names like these two. But with plenty of cash to ride out today’s storms, they should also be of consideration for investors anticipating further stock market uncertainty.
Taking a look at mid-to-large market capitalization names, these seven stand out as cash stocks to buy in today’s still-uncertain market:
- Alphabet
- Gilead Sciences (NASDAQ:GILD)
- ITT Inc. (NYSE:ITT)
- Levi Strauss & Co. (NYSE:LEVI)
- National Beverage (NASDAQ:FIZZ)
- Micron Technology (NASDAQ:MU)
Let’s dive in, and see why these companies with relatively large war chests may be solid buys to consider.
Cash Stocks to Invest In: Alphabet (GOOG, GOOGL)
You can’t leave out GOOG stock when talking about companies with large cash balances. Not only is Alphabet a cash cow thanks to its Google advertising business, but the company currently sits on a cash hoard topping $117.2 billion. That’s around 12% of their total market cap!
Granted, it’s not as if the tech giant is free of debt. But their total outstanding debt ($16.8 billion) is a pittance compared to their ample liquidity. Especially when you consider the company generated a staggering $54 billion in operating cash flow in the past 12 months.
Sure, the company is facing short-term hiccups in its flagship digital ad business. However, as our own Matt McCall wrote June 2, the search business isn’t going anywhere. Add in long-term catalysts like their investment in autonomous vehicles, and there’s plenty of upside potential for the company’s stock price.
With high margins and a strong economic moat, GOOG stock is a defensive play that could move higher.
Facebook (FB)
Two FAANG stocks in a row! I promise you this list includes a wide spectrum of names across multiple sectors. However, it just so happens that the same positives for GOOG stock apply here with FB stock.
These include: a large cash hoard relative to market cap ($60.3 billion in cash against market value of $651.3 billion), high margins and strong cash flow. Also, like Alphabet, Facebook is largely tied to the health of the digital ad market.
Nevertheless, as tech remains resilient, this is yet another cash-rich play to consider in case markets go haywire again. Today’s valuation — a forward price-to-earnings (P/E) ratio of 31.7, is a bit rich. However, if shares continue to pull back, you may find opportunity to scoop this name up at a more reasonable price.
As our own Matt McCall recently wrote, the company is facing multiple near-term challenges. But, as a tech blue chip with substantial liquidity, FB stock remains a high-quality cash stock to consider.
Gilead Sciences (GILD)
This big pharma play lost some of its wind, as focus shifted from coronavirus treatment plays to vaccine plays like Moderna (NASDAQ:MRNA). However, there’s many reasons to consider this stock a buy, with or without a pandemic catalyst. Firstly, GILD stock is cash-rich. The company has a $24.3 billion war chest, compared to a $91.8 billion market cap.
Granted, this large cash balance is somewhat countered by $24.1 billion in outstanding debt. But, with the company’s trailing twelve month (TTM) operating cash flow of $9 billion, this company is profitable enough to support this debt position.
Secondly, a rumored takeover by AstraZeneca (NYSE:AZN) may not be in the cards. However, given the stock’s high quality, shares could still move higher, as investors appreciate its strengths as a defensive stock. Between a portfolio of strong antiviral treatments, high operating margins, as well as a solid 2.7% dividend yield, consider this a potential safe harbor as markets remain uncertain.
One caveat: shares could fall back further, if interest in the company’s coronavirus catalyst (remdesivir) continues to cool. But, at lower prices, shares are even more of a screaming buy.
ITT Inc. (ITT)
After discussing some better known cash-rich stocks, let’s dive into some lesser-known names. With $840 million in cash against a $4.7 billion market cap, ITT stock is sitting on a relatively large cash position. But, there is good reason why investors have been concerned with this industrial conglomerate.
As one commentator discussed back in May, the company has heavy exposure to industries hard-hit by the pandemic. Yet, Mr. Market may have oversold shares due to these coronavirus headwinds. This name could see significant share price upside, if things start to recover during the third and fourth calendar quarters of this year.
If things take longer-than-anticipated, though, their war chest of cash may help blunt any additional downside for the stock. Granted, this is a more cyclical play compared to the other names mentioned in this article. Nevertheless, ITT stock may an overlooked name to consider, thanks to a liquidity position much stronger than the markets give it credit.
Levi Strauss (LEVI)
The ubiquitous apparel company went public last year. However, this spring’s stock market turmoil pushed shares well below their $17 per share IPO price. But even as LEVI stock has bounced back from its 52-week low ($9.09 per share), shares remains a cash stock to consider.
As it stands now, the company has $957.5 million in cash, against a $5.5 billion market cap. Sure, this company also has a fairly large debt balance to match. Said debt was also downgraded by ratings agency Fitch back in April.
Nevertheless, with debt maturities years off, this company has plenty of time for things to “return to normal.” The damage to brick-and-mortar retail due to the pandemic may be another area for concern. However, with the company’s strong brand equity, their prospects remains strong — and Levi’s aren’t going anyway anytime soon.
Even if the decline of brick-and-mortar accelerates, the company can still thrive as apparel purchases move to e-commerce platforms. Granted, this is a riskier cash-rich play, compared to more resilient names like Alphabet and Facebook. Nonetheless, its many positives outweigh its negatives.
National Beverage (FIZZ)
As the makers of La Croix and other beverage brands, this long-time winner now trades higher than where it was pre-pandemic. However, that’s no surprise given consumer packaged companies thrived during the initial “stockpiling” phase of the pandemic.
With a fairly large cash position relative to its market cap, the company is liquid enough to thrive through these tough times. This cash could be used to shore up La Croix’s sagging market share. But also, this lesser-known beverage name could use its war chest to bulk up its operations via acquisitions.
Also, FIZZ stock currently sells at a reasonable valuation. The stock’s forward P/E is 20.5, on par with Coca-Cola (NYSE:KO) and Pepsico (NASDAQ:PEP), but far below that of names like Monster Beverage (NASDAQ:MNST).
National Beverage may not be a household name, and it’s definitely not a blue-chip either. But with a strong cash position, and a profitable operating business, this name may be one to consider.
Micron Technology (MU)
Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) may be the hottest chip stocks out there. Yet, Micron has its merits as a cash-rich semiconductor play with substantial upside.
Right now, the company has $7.5 billion in cash against a $54 billion market cap. Even with a moderate level of debt ($6 billion), the company has enough liquidity to survive and thrive in today’s environment.
Granted, MU stock is a more cyclical play than the aforementioned “high-flyers.” But, as InvestorPlace’s Larry Ramer wrote June 11, this maker of DRAM memory chips has multiple catalysts in motion.
As Ramer discussed, the growth of AI (artificial intelligence), e-commerce and cloud computing means increased demand for DRAM. In other words, MU stock is on the right side of many “megatrends.”
With these factors in mind, MU stock is yet another cash-rich play to consider — whether markets head lower, or continue to bounce back from their March lows.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
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