Analysts love these stocks that are raking in tons of cash
Investors are preparing for a bleak 2023 by doubling down on cash-rich companies. “We prefer companies that generate cash rather than those that need capital to grow. Not only are interest rates likely to remain higher than they have been in the past, but we are likely to exit an era of hyper-accommodative monetary policy,” Bank said of America. in a memo dated 1[ads1]6 January. The higher the return on free cash flow, the better a company’s position to meet its debt obligations. A company with high free cash flow can also more quickly access cash in the event of an emergency or opportunity. “Companies that pay dividends, companies with good cash flow, quality balance sheets, international stocks — especially international value — this is where the puck has been headed already and I think it will continue,” Josh Brown, CEO of Ritholtz Wealth Management, told CNBC last week. Using FactSet data, CNBC Pro examined stocks that boast plenty of cash and may be well-positioned for a difficult year. These were the criteria used: Stocks with high free cash flow yield of more than 10% Low volatility (beta of less than 1) Potential upside to price target Buy rating of at least 40% Stocks that appeared on the screen below include those in the telecom, healthcare and consumer sectors , which are generally considered safe havens in times of recession. US-listed Chesapeake Energy Corporation was the only energy stock to appear on the screen, with its free cash flow yield of nearly 14%. Analysts gave it a 53.7% upside, and the majority (76.5%) gave it a “buy” rating. The stock, like most energy companies, did well over the past year – already climbing around 40%. Last week, the firm announced it had agreed to sell part of its South Texas business for $1.43 billion in cash. Companies in the healthcare or pharmaceutical industry also made the cut, such as the US companies Bristol-Myers Squibb and CVS Health. Financial services firm Cantor Fitzgerald said in a Jan. 17 note that 2023 could be Bristol-Myers Squibb’s “breakout year,” and gave the stock an overweight rating. “BMY has one of the best 2023E growth profiles of the US Pharma group … which stands out in a recession year,” Cantor wrote. Canadian financial firm Fairfax stood out as having the highest FCF yield on the list – at 30.4%, while Hong Kong-listed WH Group – the world’s largest pork producer – earned the highest buy rating at 94%. Two telecommunications firms – Britain’s Vodafone Group and Germany-based Deutsche Telekom – had among the highest FCF returns of 27% and 23.7% respectively. Argus Research noted in a January 20 report that Vodafone shares outperformed the benchmark over the past three months. It added that the current valuation is reasonable, given the slow growth outlook. — CNBC’s Michael Bloom and Fred Imbert contributed to this report.
