In this article, we discuss 10 high free cash flow stocks to buy in 2022. If you want to read about some more high free cash flow stocks to buy in 2022, go directly to 5 High Free Cash Flow Stocks to Buy in 2022.
On July 27, the Federal Reserve in the United States raised the benchmark interest rate by 75 basis points, pushing it to a range of 2.25% to 2.50%, in an effort to curb growth and ease the pricing pressures on the market. The interest raise was the largest in close to three decades. Merely a day after this raise, the US Department of Commerce released GDP growth numbers for the second quarter of 2022, revealing that the US economy had shrunk for the second consecutive quarter, a technical indication that the US was now in a recession.
The markets have been pummeled as a result of recession fears over the past few months, with the S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average down 13.8%, 21.74%, and 10.22% year-to-date respectively. Even though tech stocks have generally been battered during this panic, firms with strong free cash flows like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), have all surprised analysts with their guidance numbers.
Free cash flows are an important metric that investors monitor closely when looking at the financials of a company during a crisis period. This is because free cash flows allow firms with the room to develop new products, make acquisitions, pay dividends, and reduce debt during a period of inflation. Firms with weak cash flows suffer during recession periods because as the values of goods rise, their operating margins decrease and sales also come under pressure because of weaker consumer spending.
Our Methodology
The companies that have high free cash flows were selected for the list. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Viacheslav Bublyk on Unsplash
High Free Cash Flow Stocks to Buy in 2022
10. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
Free Cash Flow TTM: $8 Billion
NVIDIA Corporation (NASDAQ:NVDA) operates as a visual computing firm. The stock has jumped over 25% in the past few weeks after the US Senate and the House passed the CHIPS Act, a legislation designed to provide governmental incentives to semiconductor firms in the US so that they can compete with Chinese manufacturing. The bill will provide $52 billion in subsidies for domestic production, around $24 billion in tax incentives, and $200 billion to boost scientific research in the chip industry over the next decade.
On July 25, Barclays analyst Blayne Curtis maintained an Overweight rating on NVIDIA Corporation (NASDAQ:NVDA) stock and lowered the price target to $200 from $295, noting that it was too early to buy the dip in semiconductor stocks.
At the end of the first quarter of 2022, 102 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in NVIDIA Corporation (NASDAQ:NVDA), compared to 110 the preceding quarter worth $10.4 billion.
Just like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), NVIDIA Corporation (NASDAQ:NVDA) is one of the stocks that elite investors are buying.
In its Q1 2022 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA) is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVIDIA Corporation (NASDAQ:NVDA) chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
9. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 74
Free Cash Flow TTM: $15 Billion
AT&T Inc. (NYSE:T) is a media, communications, and technology firm. On July 21, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.65, beating analyst expectations by $0.03. The revenue over the period was $29.6 billion, down over 17% compared to the revenue over the same period last year but beating market estimates by $130 million. The company also said it was decreasing full-year free cash flow guidance to around $14 billion to reflect heavy investment in growth and working capital impacts.
On July 22, Morgan Stanley analyst Simon Flannery maintained an Overweight rating on AT&T Inc. (NYSE:T) stock with a price target of $22, noting that the selloff in the stock due to downward cash flow guidance was an overreaction from investors.
At the end of the first quarter of 2022, 74 hedge funds in the database of Insider Monkey held stakes worth $4 billion in AT&T Inc. (NYSE:T), compared to 70 in the preceding quarter worth $4.9 billion.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T Inc. (NYSE:T) to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
8. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Free Cash Flow TTM: $16 Billion
Vale S.A. (NYSE:VALE) markets iron ore products. The firm posted earnings for the second quarter of 2022 on July 29, reporting earnings per share of $1.32, beating market estimates by $0.52. The revenue over the period was $11.6 billion, down more than 33% compared to the revenue over the same period last year and missing analyst expectations by $450 million. The board of directors for the firm also approved almost $3 billion in dividends and interest on capital to be paid in the month September.
On June 22, Morgan Stanley analyst Carlos De Alba maintained an Equal Weight rating on Vale S.A. (NYSE:VALE) stock and lowered the price target to $16 from $22, noting that decreasing iron ore prices would weigh on the shares of the firm in the near term.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Vale S.A. (NYSE:VALE), with 28 million shares worth more than $573 million.
7. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
Free Cash Flow TTM: $23 Billion
Berkshire Hathaway Inc. (NYSE:BRK-B) is a diversified holding company with interests in finance, transport, and utility businesses. The firm is famous for the intelligent deployment of cash during crunch times, a strategy that has contributed to the handsome long-term returns of the company in the past five decades. Recently, Warren Buffett, the chief of the firm, has been buying up shares in energy firm Occidental Petroleum. In mid-July, Berkshire moved closer to a 20% stake in the energy firm after buying around 2 million additional shares.
Berkshire Hathaway Inc. (NYSE:BRK-B) is one of the few stocks that have outperformed the benchmark S&P 500 during periods of recession. The firm achieves this through deal-making during crisis times, using the cash pile it is sitting on to make purchases.
At the end of the first quarter of 2022, 104 hedge funds in the database of Insider Monkey held stakes worth $19 billion in Berkshire Hathaway Inc. (NYSE:BRK-B), compared to 108 in the preceding quarter worth $19.3 billion.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Berkshire Hathaway Inc. (NYSE:BRK-B) was one of them. Here is what the fund said:
“Diversified holding company Berkshire Hathaway Inc. (NYSE:BRK-B) reported strong earnings during the quarter and benefited from continued share repurchases below intrinsic value. The company also announced significant deployments of excess cash during the quarter, including the acquisition of Alleghany and a large increase in its stake in Occidental Petroleum.”
6. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 79
Free Cash Flow TTM: $31 Billion
Pfizer Inc. (NYSE:PFE) makes and sells biopharma products. The company recently beat market estimates on earnings per share and revenue for the second quarter of 2022 by $0.26 and $1.5 billion, respectively. The firm also maintained guidance for COVID-19, saying it expected Comirnaty, the vaccine, and Paxlovid, a COVID-19 pill, to generate nearly $32 billion and $22 billion in revenues in 2022. The stock has also risen on the back of news that lawmakers might approve another $21 billion in funding for new variants of the virus.
On July 8, Morgan Stanley analyst Terence Flynn maintained an Equal Weight rating on Pfizer Inc. (NYSE:PFE) stock and lowered the price target to $49 from $52, backing biopharma revenues to remain resilient in the face of a slowing economy.
At the end of the first quarter of 2022, 79 hedge funds in the database of Insider Monkey held stakes worth $4 billion in Pfizer Inc. (NYSE:PFE), compared to 83 in the preceding quarter worth $5 billion.
Along with Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Pfizer Inc. (NYSE:PFE) is one of the stocks that hedge funds are monitoring.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Pfizer Inc. (NYSE:PFE) was one of them. Here is what the fund said:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizeable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer Inc. (NYSE:PFE) had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.”
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Disclosure. None. 10 High Free Cash Flow Stocks to Buy in 2022 is originally published on Insider Monkey.
