In this article, we will take a look at the 10 cash-rich stocks to buy according to hedge funds. If you want to see more stocks in this selection, go to the 5 Cash-Rich Stocks To Buy According To Hedge Funds.
The US and the global economy are dealing with high inflation, causing the Federal Reserve and other central banks around the world to raise benchmark interest rates. Moreover, the conflict between Russia and Ukraine since February 2022 and COVID-related updates from China have also played a significant role in increasing global uncertainty and escalating recession-related concerns. All these adverse developments have resulted in the leading market indices like the S&P 500 Index, the Dow Jones Industrial Average (DJIA) Index, and the NASDAQ Composite Index posting a year-to-date (YTD) decline of 19.3%, 8.6%, and 32.9%, respectively.
Under such circumstances, the famous phrase “cash is king” comes into play often. This means that during uncertain macroeconomic times, cash becomes more valuable than any other form of investment as it provides strength to the balance sheet and acts as a safety net. Popular companies such as Alphabet Inc. (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are considered among the best cash-rich stocks to buy according to hedge funds. These companies have also used their cash balances strategically to acquire assets at attractive prices, which has helped these corporations combat the market downturn more aggressively.
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Our Methodology
In this article, we have shortlisted stocks with strong cash reserves as of Q3 2022 and have ranked them according to the hedge fund sentiment. Experts believe these companies are in a stable position to weather the economic downturn and support their growth plans in the coming quarters. Insider Monkey uses its proprietary database of 920 elite funds to track hedge fund holdings as of the third quarter of the year.
10 Cash-Rich Stocks To Buy According To Hedge Funds
10. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 53
Latest Cash and Short-Term Investments: $16.19 billion
General Electric Company (NYSE:GE) is a Boston, Massachusetts-based industrial conglomerate.
The company intends to spin off its healthcare division as a separate publicly listed entity in the first week of 2023. However, it must be noted that the cash balance would not be impacted significantly as a cash balance of $500 million has been allocated to the healthcare division as of September 30. Furthermore, General Electric Company (NYSE:GE) will also hold a 19.9% stake in the newly spun-off entity.
Not only numerous hedge funds are invested in General Electric Company (NYSE:GE), but analysts are also bullish on the stock. Julian Mitchell at Barclays assigned General Electric Company (NYSE:GE) stock a target price of $96 along with an Overweight rating on December 16. The analyst updated his financial estimates to incorporate the impact of spinning off the healthcare business. Experts also believe that the industrial giants are finding pricing support, an improvement in costs, and ease in the supply chain that would be favorable for the bottom line.
9. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 74
Latest Cash and Short-Term Investments: $26.21 billion
General Motors Company (NYSE:GM) is a Detroit, Michigan-based automaker that is focused on becoming a leader in the field of electric vehicles (EV).
During Investor Day in November, the company shared its electrification plan with analysts and investors. Dan Ives at Wedbush was impressed by the presentation and thinks that General Motors Company (NYSE:GM) has taken a bullish stance on the overall demand for EVs and its battery production targets. The management looks very confident in achieving those targets, and the significant cash reserve can play an integral part. General Motors Company (NYSE:GM) anticipates its top line to compound annually by 12% between the 2023 – 2025 period to reach the $225 billion milestone.
The EV segment is expected to contribute $50 billion to the top line by 2025. In August 2022, General Motors Company (NYSE:GM) restored its quarterly dividend after suspending it at the start of the pandemic and also increased its share buyback plan from $3.3 billion to $5 billion.
Here’s what Chartwell Investment Partners said about General Motors Company (NYSE:GM) in its Q2 2022 investor letter:
“The three worst-performing stocks in the Dividend Equity accounts includes General Motors (NYSE:GM, 2.4%), down 27.4%. GM posted solid first-quarter earnings, but, supply issues continue to be a headwind and the market appears to be “pricing-in” at least a mild recession. The question seems to be: by the time the supply constraints are resolved, will we be in a much-worse economic scenario that will “hit” the demand side?
After a couple quarters of higher-than-average trading, Q2 was extremely light in both the Growth & Balanced and Dividend Equity accounts (see below). After trimming GM earlier in the year at much higher price levels, we added back to the position. Now trading at $32 per share, GM’s P/E multiple on 2022 earnings estimates is below 5 times its annual earnings per share, which we think is very attractive and is already pricing-in at least a mild recession.”
8. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 77
Latest Cash and Short-Term Investments: $36.13 billion
Pfizer Inc. (NYSE:PFE) is a New York-based pharmaceutical company.
Experts believe Pfizer Inc. (NYSE:PFE) has built up its cash position due to the tailwinds from the COVID-19 vaccine. The company is now using the cash balance intelligently to acquire companies that integrate with its operations to create synergies and also expand its offerings. Pfizer Inc. (NYSE:PFE) announced the acquisition of New Haven, Connecticut-based Biohaven Pharmaceuticals for a sum of $11.6 billion in May 2022. Following that, the company announced the takeover of San Francisco, California-based Global Blood Therapeutics (GBT) for $5.4 billion.
On December 13, Chris Shibutani at Goldman Sachs upgraded Pfizer Inc. (NYSE:PFE) stock from a Neutral to a Buy rating and increased the target price from $47 to $60. The analyst highlighted the positive pipeline of products that are expected to outperform estimates following their commercial launch in 2023. This can drive significant value to the base business of the company. These developments have also reduced Pfizer Inc.’s (NYSE:PFE) reliance on the prolonged outperformance of COVID-19 vaccines.
Here’s what Diamond Hill Capital said about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:
“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”
7. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
Latest Cash and Short-Term Investments: $108.96 billion
Berkshire Hathaway Inc. (NYSE:BRK-B) is an Omaha, Nebraska-based diversified conglomerate led by famous billionaire philanthropist Warren Buffett. The company owns leading firms in the energy generation and distribution, insurance, manufacturing, rail transportation, and retail businesses.
Berkshire Hathaway Inc. (NYSE:BRK-B) is the biggest hedge fund holder in leading companies like Apple, Inc. (NASDAQ:AAPL) and Bank of America Corporation (NYSE:BAC). The company has heavily diverted cash resources to increase its exposure in the oil and gas exploration and production (E&P) industry by taking a 20.9% stake in Occidental Petroleum Corporation (NYSE:OXY). The company has already received a go-ahead from the US Federal Energy Regulatory Commission (FERC) to buy as much as 50% of the company. Berkshire Hathaway Inc. (NYSE:BRK-B) also used its cash position to complete the $11.6 billion acquisition of New York-based insurance company Alleghany in March 2022. Meanwhile, during Q3 2022, Berkshire Hathaway Inc. (NYSE:BRK-B) also revealed a $4.1 billion stake in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
Here’s what BerkHere’sHathaway said about Berkshire Hathaway Inc. (NYSE:BRK-B) in its Q4 2021 investor letter:
“BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Charlie Munger, my long-time partner, and I have the job of managing a portion of your savings. We are honored by your trust.
Our position carries with it the responsibility to report to you what we would like to know if we were the absentee owner and you were the manager. We enjoy communicating directly with you through this annual letter, and through the annual meeting as well.
Our policy is to treat all shareholders equally. Therefore, we do not hold discussions with analysts nor large institutions. Whenever possible, also, we release important communications on Saturday mornings in order to maximize the time for shareholders and the media to absorb the news before markets open on Monday.
A wealth of Berkshire facts and figures are set forth in the annual 10-K that the company regularly files with the S.E.C. and that we reproduce on pages K-1 – K-119. Some shareholders will find this detail engrossing; others will simply prefer to learn what Charlie and I believe is new or interesting at Berkshire.
Alas, there was little action of that sort in 2021. We did, though, make reasonable progress in increasing the intrinsic value of your shares. That task has been my primary duty for 57 years. And it will continue to be.
What You Own
Berkshire owns a wide variety of businesses, some in their entirety, some only in part. The second group largely consists of marketable common stocks of major American companies. Additionally, we own a few non-U.S. equities and participate in several joint ventures or other collaborative activities.
Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers…” (Click here to see the full text)
6. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 110
Latest Cash and Short-Term Investments: $45.24 billion
UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based diversified healthcare and insurance corporation.
The company invested $5.40 billion to acquire Lafayette, Louisiana-based LHC Group in March 2022, followed by a $1.25 billion acquisition of Leeds, United Kingdom-based EMIS Group. Such acquisitions helped UnitedHealth Group Incorporated (NYSE:UNH) insulate itself from a cyclical economic downturn. The company intends to give back $5.45 billion to its shareholders as dividends and conduct a total share buyback of $5 billion to $6 billion for the year.
In a note issued to investors on December 7, A.J. Rice at Credit Suisse increased the price target on UnitedHealth Group Incorporated (NYSE:UNH) from $590 to $610 and maintained an Outperform rating on the stock. Experts think that scale is an integral factor in the health insurance business, and this plays in favor of UnitedHealth Group Incorporated (NYSE:UNH) as it is the biggest insurance company across numerous sub-categories.
Stewart Asset Management shared its stance on UnitedHealth Group Incorporated (NYSE:UNH) in its Q3 2022 investor letter. Here’s what the firm said:
“Looking at the Great Recession which began at year-end 2007 and lasted to mid-year 2009 is helpful too. Our four largest current holdings in the portfolio weathered that period well. UnitedHealth’s (NYSE:UNH) earnings were resilient. While it reported modestly down earnings in 2008, its earnings rebounded quickly to record highs in 2010 and the shares responded strongly in anticipation of this.”
In addition to UnitedHealtHere’sp Incorporated (NYSE:UNH), companies such as Alphabet Inc. (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are also on our list of the cash-rich stocks to buy according to hedge funds.
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Disclosure: None. 10 Cash-Rich Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
