Retirement investing is at its core a simple strategy – make sure you have enough cash to live comfortably. The strategies of the best large cap stocks and blue chip stock picks are quite similar – make sure you have enough cash to grow, innovate and prosper. Whether this cash is delivered via high dividend yield or whether a company reinvests its free funds, the bottom line is that a company has to have cash to keep investors happy and succeed on Wall Street.
Here are the 7 stock picks with the largest amount of free cash right now:
Apple Inc. (AAPL) – Apple Inc. has been raking in the sales and profits with its iPhone smartphone and iPad. As a result, AAPL has $23 billion in cash and short-term securities and another $18 billion in long-term marketable securities. That’s $41 billion. Like many of the other stocks in this list, Apple has no meaningful debt – and since it doesn’t pay a dividend that means its cash is readily available for new product launches or acquisitions.
Google Inc. (GOOG) – Google is also doing pretty well on the smartphone front with its Android OS. As a result of this and its massive internet operations, Google is sitting on over $20 billion in cash and has positive cash flow to increase that balance ever quarter. Like Apple, Google does not pay a dividend so this is free cash in every sense.
Microsoft (MSFT) – Microsoft has almost $40 billion in cash. In 2004, its cash balance was so huge that it had a special dividend of $3 a share and promised to return $75 billion to shareholders by 2008. The company could do that again, providing a windfall for investors holding the stock.
Berkshire Hathaway (BRK-B) – Warren Buffett’s Berkshire Hathaway has over $25 billion in cash and short term securities. But that is misleading. Buffett has a portfolio of holding in public companies worth close to $125 billion.
Exxon Mobil (XOM) – Exxon has nearly $50 billion in cash and returns and pay about $8 billion a year to shareholders in dividends.
Chevron (CVX) – Oil giant Chevron has over $30 billion and with crude above $70, that amount grows substantially with each passing day as motorists pay more at the pump.
Cisco (CSCO) has over $30 billion in cash, although it seems to make an acquisition a month.
There are a number of reasons to invest in companies with massive cash balances. The first is that they are well positioned to meet any economic downturn. Another is that they are positioned to buyback billions of dollars of shares and increase dividends. Cash-rich companies can keep paying dividends in rough times. Share buybacks increase EPS, a key benchmark for stock valuations. Another reason to like cash-rich companies is that they can make acquisitions without issuing stock, which often dilutes that value of the shares held by current shareholders.
The market is showing signs of faltering, with a lot of volatility in the first half of 2010. If the economy weakens it could sell off substantially and cause headaches for investors.
But being in the stock of companies with huge cash hordes is a pretty good idea now since that ensures the company is solvent and that it has the ability to weather a downturn and come out strong and ready to grow once more after the dust settles.