A strong balance sheet can and should be a key part of the bull case for a stock. Modest — or zero — debt lowers risk. And excess cash can be used for shareholder returns, M&A, or growth opportunities while, in some cases, putting a protective floor under the stock.
Of late, even in major stocks, investors have seen the importance of the balance sheet. Consumer giants Kraft Heinz (NASDAQ:KHC) and Anheuser-Busch InBev (NYSE:BUD) have seen their equity values plunge after loading up on debt. AT&T (NYSE:T) hasn’t shown the same downside, but its record levels of debt threaten its dividend and likely have kept on lid on T stock in recent years.
So cash-rich stocks offer some value — but not without their own downside. Companies that keep significant amounts of excess cash aren’t putting that cash to work or allowing their shareholders to do the same. Debt can cause big downside if a business stumbles; it can also lever returns higher if management strategies succeed.
As always, there’s no simple way to find the best stocks to buy among these names. But for investors who look for cash-rich stocks, these 15 fit the bill. All have big cash balances that can be put to use and little or zero debt. Those balance sheets provide plenty of options for management — and, hopefully, potential moves that can boost shareholder value.
Cash-Rich Stocks to Buy: Apple (AAPL)
Outside of banks, it’s likely no other company in history has had more cash than Apple (NASDAQ:AAPL) does right now. The company closed its fiscal first quarter with $245 billion in cash and investments.
The question is what Apple plans to do with it. Investors long have clamored for a big acquisition, particularly with the company’s emphasis on growing its Services business. But that historically hasn’t been Apple’s style: its biggest buy ever was the $3 billion deal for Beats Music back in August 2014.
That may change: earlier this year, Luke Lango detailed 7 potential M&A targets for Apple (among them Netflix (NASDAQ:NFLX)). Either way, however, Apple will spend its $130 billion net cash in some way, as management disclosed early last year. That will likely include aggressive dividend increases – and almost certainly additional share repurchases. Apple spent $73 billion on buybacks last year, another $8 billion-plus in Q1.
The question is whether that windfall — or M&A — will be enough. I wrote last month that I’m still skeptical toward the pivot to services, with iPhone revenues likely to decline as pricing power maxes out. But AAPL is cheap, and management has plenty of tools at its disposal to try and move the stock higher.
Advanced Energy Industries (AEIS)
Power products manufacturer Advanced Energy Industries (NASDAQ:AEIS) has an interesting bull case at the moment. AEIS stock has dropped by about 30% from early June highs, due largely to worries about the semiconductor manufacturers it services.
As a result, AEIS looks rather cheap, at 10x 2020 EPS estimates. But the company also has some $9 per share in cash — which makes AEIS even cheaper. Excluding that hoard, AEIS trades at barely 8x next year’s consensus.
Admittedly, this is a cyclical stock. And many companies in the chip space keep cash on the balance sheet to ensure they can manage through a downturn. Still, Advanced Energy seems to have some dry powder here. Cash has risen by over $200 million in the last five years.
On the Q4 call, meanwhile, CFO Paul Oldham said the company would “use our strong cash position to pursue new growth opportunities and expand our addressable market.” That could signal a willingness for M&A — and putting that cash to work might make AEIS even cheaper.
The story at Netgear (NASDAQ:NTGR) has been frustrating of late, to say the least. The spin-off of Arlo Technologies (NYSE:ARLO) has been an unmitigated disaster. Margins have seen pressure recently. Amazon.com (NASDAQ:AMZN) acquired “mesh network” provider and Netgear competitor Eero last month.
But I haven’t given up on Netgear just yet. Its router business still is hanging in there. Dominant market share in switches provides a stable profit base. And Amazon historically hasn’t been successful in hardware: it has won with the Echo, but failed with the Fire Stick and Fire Phone, among other efforts.
One reason I’m still long NTGR stock is the company’s cash balance. Netgear closed 2018 with $273 million in cash and investments — nearly a quarter of its market cap. That dry powder is likely to be used for M&A, which could grow earnings. At less than 15x 2019 EPS estimates, an accretive deal can make NTGR cheap again. And it could jumpstart a rally that erases at least some of the disappointment of the last year.
Facebook (NASDAQ:FB) has seen a nice rally so far this year, gaining some 30%. Controversy still swirls around the company, but investors seem at least a bit more confident than they were at the end of 2018.
At the end of the day, Facebook stock is going to come down to how users feel, not investors. But in the meantime, the company has quite a bit of cash to play with. Facebook ended 2018 with $41 billion in cash — and no long-term debt.
It’s not entirely clear what Facebook plans to do with the cash — or what it can do. A major acquisition probably doesn’t make a lot of sense. Last year, the company used most of its impressive free cash flow for buybacks. The company generated $17.7 billion in free cash flow — and spent almost three-quarters as much repurchasing stock.
At an average price of $163 (according to figures from the 10-K), that effort has been accretive so far. And it should continue into 2019. Investors who believe FB still is cheap can at least know that Facebook itself will be buying shares as well.
Bassett Furniture (BSET)
Source: Mike Mozard via Flickr
It has been a struggle of late for Bassett Furniture (NASDAQ:BSET). Torrid growth in the first few years of the decade has slowed to a crawl. Retail sales declined in fiscal 2018 (ending November) for the first time since 2011. And BSET stock touched a four-year low earlier this month before rebounding modestly in recent sessions.
But there’s an intriguing “buy the dip” case here. The company should be able to work through disruption from tariffs and higher input costs. There’s still room to expand the footprint of the retail business; that segment has turned from a loss leader to a modest profit center.
And Bassett still has a rock-solid balance sheet. It closed FY18 with over $55 million in cash and investments — almost 30% of its market cap. The company paid special dividends back in 2015 and 2016 and could do so again. Meanwhile, backing out that cash, BSET trades at about 13x earnings, with those earnings down sharply from recent levels.
There’s tons of upside to BSET if the company can execute a turnaround. That’s a big “if,” and it requires some macro help as well. But the balance sheet gives Bassett time — and BSET stock some downside protection.
Alphabet (GOOG, GOOGL)
It’s less clear what Alphabet’s plans are. The company’s expanding reach beyond search gives it a wealth of potential M&A targets. It wouldn’t be a total shock if the company decided to put more capital behind its Waymo self-driving car program. The company could try to move into content. And it has made moves into hardware, most notably with its purchase of Nest.
Here, too, the cash does color the valuation of the stock. GOOGL already looks cheap, at 22x forward earnings. Exclude the cash hoard, and the forward multiple dips under 20x. There are some reasons for the low multiple, including pressure on the search business, but Alphabet has a literal wealth of options at its disposal going forward.
Plenty of retailers have good amounts of cash on the balance sheet. But Guess? (NYSE:GES) combines a fortress balance sheet with an intriguing bull case.
At the moment, it doesn’t look like Guess? has that much to play with. Net cash at the end of the third quarter was just $139 million. But that will change when the company reports fourth-quarter results next week. Inventory builds ahead of the key holiday season will reverse — Guess? will likely finish its fiscal year with over $3 per share in cash.
Meanwhile, growth looks impressive. The company is managing positive same-store sales in the Americas. But the real opportunity is overseas. Guess? is performing exceedingly well in Europe, and has a huge growth opportunity in Asia.
Backing out that cash, GES trades at under 17x forward EPS — an intriguing multiple. For investors who want international exposure and a strong balance sheet, GES should be at the top of the list.
Dolby Laboratories (DLB)
Dolby Laboratories (NYSE:DLB) offers an interesting combination of value and growth. $12 per share in cash on the balance sheet provides some downside protection — and fuel for growth. New initiatives like Dolby Cinema, Dolby Voice and Dolby Vision are growing quickly, with guidance for the three categories to increase sales 30%-50% in fiscal 2019 (ending September).
The story isn’t perfect. Some of the cash probably could be spent with no real harm to Dolby. Family control of the company may limit distributions (for tax reasons). And valuation isn’t as cheap as Dolby’s non-GAAP numbers suggest, as stock-based compensation is rather high.
Still, there’s a nice base in royalty revenue, huge margins and growth potential. With DLB stock still off the highs, there could be nice upside here going forward — with less risk than the rest of the market.
But I’ll admit other investors can see it differently. Fitbit could be an acquisition target at some point, with a buyer looking to slash overhead costs and increase distribution. And few stocks in the market have the same amount of cash as Fitbit. At the end of 2018, Fitbit had $723 million in cash and investments — almost half its market cap of about $1.5 billion.
At the least, Fitbit has plenty of time to turn its operations around. Adjusted EBITDA still is guided to flat to negative this year, so there’s work left to do. But patient investors might see Fitbit as worth the wait — with the cash providing a potential floor, even if operations take a turn for the worse.
Amtech Systems (ASYS)
It does seem like micro-cap equipment manufacturer Amtech Systems (NASDAQ:ASYS) simply can’t fall any further. Around $5, its market cap sits at $72 million. But Amtech has some $56 million in unrestricted cash — and just $8 million in debt. Its tangible book value is just shy of $7 per share.
The problem is that ASYS has been a value favorite off and on for years now — and historically disappoints. Its exposure to solar markets leads to huge upcycles: ASYS touched $25 in early 2011, cleared $10 in 2014 and 2015, and was at $15 less than eighteen months ago. The downturns, however, usually send investors fleeing.
At this point, however, there’s an intriguing case to buy the dip. Business remains relatively weak, but the stock is cheap. $4-plus generally has held as support for most of the decade. And Amtech can use the cash sheet to make another acquisition or wait out another downturn. At the least, value investors should take a long look.
American Software (AMSWA)
Shares of American Software (NASDAQ:AMSWA) have plunged in recent months for one key reason. The ERP (enterprise resource planning) and SCM (supply chain management) software developer tried to change the narrative surrounding the stock by focusing on a shift from license revenue to SaaS (software-as-a-service) billing.
The problem is that it looks like management oversold the shift. License revenue was only a small part of the business — and overall growth has decelerated sharply in recent quarters. As a result, AMSWA has pulled back to past levels — and unsurprisingly so.
But after the sell-off, AMSWA does look a bit more attractive. Income investors can be enticed by a 3.8% yield. The company has over 20% of its market capitalization in cash. The run-up certainly went too far. But back at current levels, there’s enough here to get interested again.
Source: Kazandrew via Flickr
The case for 1-800-Flowers.com (NASDAQ:FLWS) is that the next five years will look like the past five. 1-800-Flowers.com has crushed rival FTD Companies (NASDAQ:FTD) in pretty much every way. That’s most obvious when looking at the respective stock prices. Over the past five years, FLWS stock has gained 231%. FTD has lost 94.5% of its value.
There’s still plenty of room for FLWS to gain more market share. FTD is reeling, having swapped out management and struggling under a heavily leveraged balance sheet. FLWS, on the other hand, is operating on all cylinders.
And its balance sheet could provide another catalyst. The company has $258 million in cash and only $87 million in debt. That gives 1-800-Flowers.com to ability to either drive share repurchases or look to acquisitions. The 2014 acquisition of Harry & David is a clear winner that expanded the company’s gift business. FLWS could look for another winner — or simply buy back more shares. As long as it keeps dominating its space, investors should be fine either way.
Adams Resources (AE)
Few stocks in the market have the balance sheet that Adams Resources (NYSEAMERICAN:AE) does. Adams has nearly $28 per share in cash in the bank — and zero debt.
To be fair, Adams needs quite a bit of cash for its marketing business, in which it buys vast amounts of oil from drillers and resells it at a modest profit to refiners. But at this point, a good chunk of the cash is excess, and Adams may finally be ready to put it to work. The company’s trucking business is showing signs of life amid a nationwide shortage, and after one small acquisition in that business, Adams could look to build it out further.
Expecting huge returns here may be too much to ask, admittedly. But at $38, Adams trades at only a modest premium to book value while there is some upside potential here. A 2.3% dividend helps — and so does the fortress balance sheet.
AXT (NASDAQ:AXTI) manufactures substrates used in semiconductor production, and so it’s little surprise AXTI shares have pulled back of late. The stock is down 45% over the past year.
But the declines may have gone too far. AXTI still has about $1 per share in cash against a share price just over $4. Price-to-book-value sits at about 0.9x.
Like Amtech, cycles are brutal. And like Amtech, a strong balance sheet suggests that the sell-off may have gone too far.
BlackBerry (NYSE:BB) seems almost forgotten at this point. It’s not terribly hard to see why. The company once dominated the smartphone space, but it has long since exited the business altogether. Meanwhile, BB stock has traded basically sideways for about seven years now. Investors clearly have lost patience, and interest: average daily volume in the stock is at decade-long lows.
But there is an interesting case for BB at the moment. The company used a big chunk of its cash balance to acquire artificial intelligence company Cylance. It still should have about $800 million left — well over $1 per share. The company’s QNX software is just one of the potential catalysts for the stock.
I’ve long been a BB skeptic — but there is a case here. BlackBerry still has dry powder left for another deal, or shareholder returns. And it’s possible that investors have stopped paying attention just as the company is entering a new phase.
As of this writing, Vince Martin is long shares of NETGEAR and FTD Companies. He has no positions in any securities mentioned.
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