In this article, we will look at the 10 cash-rich tech stocks to buy now. If you want to explore similar technology companies that have enough cash on hand to weather an economic downturn, you can also take a look at 5 Cash-Rich Tech Stocks to Buy Now.
Tech stocks are taking a beating in 2022. The tech-heavy Nasdaq Composite index has lost more than 25% year to date, as of September 7. As the Fed continues its aggressive rate hikes to tamp down inflation, recession fears are driving tech stocks to the bottom. On July 27, the Fed hiked interest rates by 75 basis points, the second consecutive 0.75% rate hike this year, and brought its benchmark target rate to a range between 2.25% and 2.5%. The Fed’s next meeting is scheduled for September 21, and according to Forbes, if the job market remains strong and inflation points to 9% and above, chances of another 75 basis point rate hike are more probable.
Tech companies are slashing their forecasts for the second half of 2022 and tech stocks are facing price target cuts and material downgrades. The overall outlook on the sector is becoming bearish, causing the share prices of big tech companies to fall to new lows. However, as in every industry, there are certain companies in the tech sector that have enough cash to keep their businesses afloat even if we head into a recession. The head of internet research at Evercore ISI, Mark Mahaney, appeared on CNBC’s ‘Closing Bell’ where he discussed some cash-rich companies that can sustain their performance in the current interest rate environment. Here are some comments from expert analyst, Mark Mahaney:
“We’ve had a massive derating since the beginning of the year, because we had a massive rerating last year. We had multiples well above their average bands and we took all of that out through June. Then we went into estimates risks, estimates cuts and I’ve had three quarters in a row where 70% of the companies that I cover, the December, March, and June quarters, have had negative estimates revisions and relatively material ones. I haven’t seen that level of negative revisions in multiple years. I hope that the numbers or estimates are down enough to accommodate the softening recessionary conditions that we’re obviously going into. We don’t know that, but I hope the numbers have been cut enough. A lot of the valuation risk has been taken out. Your prior guest talked about hard money and easy money, that’s how I now think about stock picks. If you tell me we’ve got a ‘hard money’ environment for the foreseeable future, a sustainably high inflation rate and sustainably high interest rates, it’s a different list of stocks you want to be looking at than if you’ve got an ‘easy money’ outlook…
It’s companies that you can look at and say free cash flow, where these companies are trading at 12, 13, 14 times GAAP earnings. We’re not doing EBITDA, or doing adjusted earnings… In the space that I look at, Google (NASDAQ:GOOGL) would be one, Meta/Facebook (NASDAQ:META) would be another, Booking (NASDAQ:BKNG) would be another, eBay (NASDAQ:EBAY) could be a name in there, and then if I wanna get a little bit creative then I actually think a name like Uber (NASDAQ:UBER) could work into that because I think you’re gonna see a real dramatic increase in free cash flow there. I’d throw all of those in my ‘hard money’ basket, names that can outperform but they gotta have free cash flow support. They can’t be long-duration assets, they have got to have real profits in ’22-’23, not ’24-’25, long duration assets won’t work in a ‘hard money’ environment…”
Some of the top cash-rich tech companies that can manage to drive outperformance in the current interest rate environment include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT). In this article, we have discussed these companies among others.
Our Methodology
We looked at the trailing twelve-month free cash flows of companies operating in the technology sector. We narrowed down our selection to stocks that had strong free cash flows, pricing power, and growth catalysts to drive further cash flow in the foreseeable future. Along with each stock, we have mentioned the analyst rating and top shareholder for it. We ranked our picks according to free cash flow, from least to most.
10 Cash-Rich Tech Stocks to Buy Now
10. Uber Technologies, Inc. (NYSE:UBER)
Free Cash Flow: $672 Million
Number of Hedge Fund Holders: 129
On August 23, Wolfe Research analyst Deepak Mathivanan reiterated an Outperform rating and his $37 price target on Uber Technologies, Inc. (NYSE:UBER). The analyst noted that the stock has strong prospects to drive profitability and free cash flow in the back half of 2022 and into 2022, and named it as one of his ‘top ideas’ in the mobility space. Mathivanan further stated that Uber Technologies, Inc. (NASDAQ:UBER) is attractively valued at current levels and that he sees the company growing its sales and margins by 20% over the next 3 to 5 years.
On August 15, Uber Technologies, Inc. (NYSE:UBER) announced a collaboration with The ODP Corporation (NASDAQ:ODP) by which the two companies plan to deliver business, office, and school essentials to consumers via Uber Eats.
At the close of Q2 2022, 129 hedge funds held stakes in Uber Technologies, Inc. (NASDAQ:UBER) worth $5.26 billion. Of those, Fisher Asset Management was the top shareholder with a stake worth $500.8 million in the company. The investment covers 0.35% of Ken Fisher’s 13F portfolio.
As of September 7, Uber Technologies, Inc. (NASDAQ:UBER) has free cash flows of $672 million and is therefore a cash-rich tech stock that should be on investors’ watchlist. Other cash-rich tech stocks for growth investors include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT).
9. eBay Inc. (NASDAQ:EBAY)
Free Cash Flow: $933 Million
Number of Hedge Fund Holders: 43
On August 3, eBay Inc. (NASDAQ:EBAY) announced strong earnings for the fiscal second quarter of 2022. The company reported earnings per share of $0.99 and outperformed expectations by $0.10. The company’s revenue for the quarter amounted to $2.42 billion and beat Wall Street estimates by $59.71 million.
On August 4, Barclays analyst Ross Sandler revised his price target on eBay Inc. (NASDAQ:EBAY) to $59 from $60 and maintained an Overweight rating on the shares. The analyst is bullish on the stock due to eBay’s (NASDAQ:EBAY) strong presence in German and UK markets. He sees the stock offering good value in the consumer internet space.
As of September 7, eBay Inc. (NASDAQ:EBAY) is trading at a trailing twelve-month PE ratio of 2.37 and is offering a forward dividend yield of 1.97%, which the company backs with free cash flows of $933 million.
At the end of Q2 2022, 43 hedge funds were bullish on eBay Inc. (NASDAQ:EBAY) and held stakes worth $1.31 billion in the company. As of June 30, Harris Associates owns more than 4.8 million shares of eBay Inc. (NASDAQ:EBAY) and is the largest shareholder in the company.
Investment management firm, Smead Capital Management, mentioned eBay Inc. (NASDAQ:EBAY) in its recently released second-quarter 2022 investor letter. Here is what the firm had to say:
“We believe you need to avoid these formerly glamorous stock groups for many years. We loved to use eBay Inc. (NASDAQ:EBAY) as a poster child back in 1999 for the dotcom bubble. We bought it eight years later and have done very well on it. We wouldn’t have done well if we bought it in the early years of that bear market, or even five years later. If you think this bear will be shorter and or less damaging than the dotcom bear market of 2000-2003, you could be showing your inexperience!.”
8. Oracle Corporation (NYSE:ORCL)
Free Cash Flow: $5.02 Billion
Number of Hedge Fund Holders: 69
Oracle Corporation (NYSE:ORCL) is a leading global developer of enterprise software solutions. At the close of Q2 2022, 69 hedge funds held stakes in Oracle Corporation (NYSE:ORCL) worth $4.18 billion. This is compared to 61 positions in the previous quarter with stakes worth $4.33 billion.
Oracle Corporation (NYSE:ORCL) is a dividend-paying and cash-rich tech stock that should be on investors’ radars. As of September 7, Oracle Corporation (NYSE:ORCL) is offering a forward dividend yield of 1.70% and has trailing twelve-month free cash flows of $5 billion.
On June 30, Oracle Corporation (NYSE:ORCL) launched the first Oracle Cloud Infrastructure region in Mexico. The company is the first cloud services and infrastructure provider in Mexico.
On August 11, Guggenheim analyst John DiFucci initiated coverage of Oracle Corporation (NYSE:ORCL) with a Buy rating and a $107 price target. The analyst noted that the company had a strong fiscal 2022, driven by accelerated cloud revenue and database performance. DiFucci expects Oracle Corporation (NYSE:ORCL) to continue on this growth trajectory and maintain high single-digit revenue growth and double-digit profit growth.
As of June 30, First Eagle Investment Management owns roughly 26 million shares of Oracle Corporation (NYSE:ORCL) and is the top shareholder in the company. The investment covers 5.1% of the fund’s 13F portfolio.
Here is what First Eagle Investments had to say about Oracle Corporation (NYSE:ORCL) in its second-quarter 2022 investor letter:
“Oracle is one of the world’s largest independent enterprise software companies and has been reinventing itself for the cloud-computing environment, a transition pursued primarily through investments in organic research and design and smallish, well-priced acquisitions. That said, Oracle in June closed its largest-ever deal with the acquisition of Cerner, a designer of software to store and analyze medical records and other healthcare data.
Oracle took on additional debt to finance this all-cash acquisition and as a result plans to moderate its stock-buyback program to focus on debt reduction. Despite the weak quarter for the stock, Oracle’s operations remain strong; it reported better- than-expected results for its most recent quarter and issued upbeat guidance for the coming fiscal year.”
7. Booking Holdings Inc. (NASDAQ:BKNG)
Free Cash Flow: $5.87 Billion
Number of Hedge Fund Holders: 93
Booking Holdings Inc. (NASDAQ:BKNG) provides online reservation services for the travel and restaurant industries worldwide. As of June 30, Harris Associates is the leading shareholder in Booking Holdings Inc. (NASDAQ:BKNG) and has a stake worth $1.07 billion in the company.
On August 3, Booking Holdings Inc. (NASDAQ:BKNG) announced earnings for the second quarter of fiscal 2022. The company reported earnings per share of $19.08 and beat estimates by $1.41. The company generated a revenue of $4.29 billion, up 98.80% year over year. As of September 7, Booking Holdings Inc. (NASDAQ:BKNG) has free cash flows of $5.87 billion and a trailing twelve-month operating margin of 27.87%, making it one of the cash-rich tech stocks with the highest margins.
On August 4, Deutsche Bank analyst Lee Horowitz revised his price target on Booking Holdings Inc. (NASDAQ:BKNG) to $2,280 from $2,300 and maintained a Buy rating on the shares.
On August 29, Robert Mylod, Jr., chairman of Booking Holdings Inc. (NASDAQ:BKNG), disclosed purchasing 500 shares of the company’s common stock at roughly $1,912 per share.
At the close of Q2 2022, 93 hedge funds were long Booking Holdings Inc. (NASDAQ:BKNG) and held stakes worth $5.45 billion in the company.
6. Broadcom Inc. (NASDAQ:AVGO)
Free Cash Flow: $15.30 Billion
Number of Hedge Fund Holders: 66
Broadcom Inc. (NASDAQ:AVGO) is a leading semiconductor chipmaker, and also one of the biggest suppliers of Apple Inc. (NASDAQ:AAPL). On September 2, Mizuho analyst Vijay Rakesh reiterated his $725 price target and Buy rating on Broadcom Inc. (NASDAQ:AVGO). The analyst noted that the company is experiencing strong demand from the data center market and has healthy order backlogs.
Broadcom Inc. (NASDAQ:AVGO) is on investors’ radars as the company has solid free cash flows, offers a strong dividend, and has high profitability. As of September 7, Broadcom Inc. (NASDAQ:AVGO) has a trailing twelve-month operating margin of 40.69% and is offering a forward dividend yield of 3.33%, which the company supports with free cash flows of $15.30 billion.
At the end of the second quarter of 2022, 66 hedge funds were eager on Broadcom Inc. (NASDAQ:AVGO) and held stakes worth $4.03 billion in the company. Of those, Fisher Asset Management was the dominating shareholder with stakes worth $716 million in the company.
In addition to Broadcom Inc. (NASDAQ:AVGO), other big tech companies that have robust free cash flows include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT).
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Disclosure. None. 10 Cash-Rich Tech Stocks to Buy Now is originally published on Insider Monkey.
