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7 Cash-Rich, Debt-Free Stocks to Buy to Clobber the Market

All of these seven companies have the same wonderful problem

“Cash is king,” so the saying goes — and that’s an important saying to keep in mind when you’re hunting down stocks to buy for both outperformance and a safety net.

Apple Inc. (NASDAQ:AAPL) recently announced its second-quarter earnings, and among the morsels of information was the fact the iPhone maker’s cash hoard had grown to $256.8 billion.

Apple, with its vault of riches, has surpassed $800 billion in market capitalization. And the cash on its balance sheet is greater than the market cap of all but 11 S&P 500 companies.

Apple also has $84.5 billion in long-term debt, but even when you back that out, Apple still has more than $170 billion in net cash. When you back that out of AAPL’s market cap, you get a stock that’s trading at just 14 times its trailing 12-month earnings. Not bad at all.

Too much cash can be a problem because the natural instinctive response to this situation is to spend it … often unwisely. But most companies would kill to have Apple’s dilemma.

However, a select few publicly traded companies are in a pretty enviable situation themselves. Specifically, they have oodles of cash like Apple … but none of the debt. That means nothing these companies earn is simply being flushed down the toilet in regular payments. Every dime is either being put into the company, used on dividends and buybacks, lying in wait for a game-changing buyout or just acting as protection for a rainy day.

No matter what way you slice it, these seven stocks to buy are the cream of the crop in large part because of their fantastic fiscal management.

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Cash-Rich Stocks to Buy: Shopify (SHOP)

Cash-to-Market Cap: 5.3%

Shopify Inc (US) (NYSE:SHOP) provides the technology necessary for small- and medium-sized businesses to operate e-commerce websites, including the collection of payments. It finished Q1 2017 with $395.7 million in cash and no long-term debt.

If you’re worried about Shopify losing money, don’t be. Its business model is all about making a little from of a large number of customers. Those customers pay Shopify a monthly subscription fee to use its e-commerce platform and to process transactions.

Simply put, Shopify brings in recurring revenue each month from customers who use its technology. As those customers grow their sales, Shopify’s top line swells because of the cut it takes. To make it worthwhile, Shopify has to scale the business, and that means spending a lot of money to market the business and capture new leads.

I recently called SHOP one of the best growth stocks to buy, thanks in part because it’s growing revenues at almost triple digits every quarter. However, it’s also a cash machine, expanding its cash flow by 510.5% to $4 million last quarter. Moreover, the company just announced it would sell 5.5 million shares to raise another $490 million to keep funding growth.

Unless something drastically bad happens in the next few quarters, Shopify is in a stellar position.

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Cash-Rich Stocks to Buy: Universal Display (OLED)

Cash-to-Market Cap: 5.5%

Universal Display Corporation (NASDAQ:OLED) has been at the forefront of a move from light emitting diode (LED) technology to organic light emitting diode (OLED) technology for flat-panel TVs. It finished Q1 2017 with $297.4 million in cash and no long-term debt.

In 2013, I recommended Universal Display stock as one of two small-cap picks to own for the next 20 years. I felt the company, and its 3,000-plus patents worldwide, had the potential to get really big. So far, so good — since my recommendation, OLED is up by more than 240%, with a good chunk of those gains coming in 2017.

Universal Display’s first-quarter earnings announced May 4 were very strong, with revenues and operating income up 87% and 384%, respectively, year-over-year. Management expects fiscal 2017 revenues to be at least $260 million, 30% higher than in fiscal 2016.

“It is an exciting time for the OLED industry. We are encouraged by the momentum that we are seeing from our customers as well as from the supply chain that supports the OLED ecosystem,” said Universal Display CFO Sidney Rosenblatt. “As we look forward, we believe that the OLED industry is poised to grow faster than earlier expectations this year.”

As far as I can tell nothing’s changed to alter my view that this stock’s a keeper.

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Cash-Rich Stocks to Buy: Five Below (FIVE)

Cash-to-Market Cap: 5.6%

Five Below Inc (NASDAQ:FIVE) sells discount merchandise including to teens and preteens. It finished Q4 2016 with $164.4 million in cash and no long-term debt.

In April, I recommended Five Below as one of the 10 best stocks to own for the next decade. Its management includes experienced retailers who know how to grow a chain’s inventory of stores. Five Below is opening 100 stores in 2017 and 2,000 in the next 10 years or so, and I believe the $5-or-less concept should continue to attract the younger demographic.

Near-term, Five Below is benefiting from the fidget spinner, a fad-like product the retailer just can’t keep in stock. New shipments of the toy are said to be selling out in as little as seven minutes.

“Supply needs to improve to fully capitalize on this trend and we hope to hear more from mgmt. on this topic,” Jefferies analyst Daniel Binder said recently. “Store managers we spoke to told us that customers coming in for this product buy other items even if fidget spinners are not available.”

Five Below had no stores in California until April, when it opened nine, then another three in May. CEO Joel Anderson says the state will ultimately become its biggest market ahead of Texas, its current store leader.

I like this retailer’s chances for long-term success.

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Cash-Rich Stocks to Buy: Healthequity (HQY)

Cash-Rich Stocks to Buy: Healthequity (HQY)
Source: Shutterstock

Cash-to-Market Cap: 6.3%

Healthequity Inc (NASDAQ:HQY) uses technology to help consumers successfully fund, invest in and spend their healthcare savings accounts (HSA). It finished fiscal 2017 with $180.4 million in cash and no long-term debt.

It also has earned a change of heart from yours truly.

In early January, I suggested that HQY was one of seven stocks to sell before they implode. Since then, it has lost about 4% — hardly an implosion for a stock that has gained 80% over the past 52 weeks.

So, what did I miss about this healthcare technology company?

In truth, I’m not sure I missed anything at all. At the time, my opinion was based on its very rich valuation as well as uncertainty about how the Trump administration would deal with HSAs. Fortunately, for companies like Healthequity, the American Health Care Act protects the expansion of HSAs.

“If enacted, it would be a win-win for employees and employers because it makes it easier for people to use their accounts and for employers to administer them,” said Steve Wojcik, vice president of public policy at the National Business Group on Health, which advocates for large employers. “It also would greatly increase the ability for both employers and employees to contribute funds to employees’ HSAs.”

Healthequity’s pristine balance sheet, combined with an increase in the annual limit for HSAs, tells me that this company’s future is very bright indeed.

While the repeal of Obamacare still has to go through the Senate, I like the direction the Republicans are taking as it relates to HSAs. Thus, HQY is now in a much better position than it was a few months ago.

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Cash-Rich Stocks to Buy: Facebook (FB)

Facebook (FB)
Source: Shutterstock

Cash-to-Market Cap: 7.4%

Facebook Inc (NASDAQ:FB), Mark Zuckerberg’s pride and joy, finished the first quarter of 2017 with $32.3 billion in cash and no long-term debt.

If you’ve been paying attention to some of Facebook’s competitors, you’re likely aware that Snapchat parent Snap Inc (NYSE:SNAP) took a big dive May 11 on significant losses and slower user growth. That’s great news for Facebook shareholders because it reveals Snapchat for what it is: a poor cousin to the king of social media.

“As a feature in The Economist about the value of data pointed out this week, Alphabet Inc (NASDAQ:GOOGL) and Facebook accounted for nearly all the revenue growth in digital advertising in the United States last year,” GameChangers editor Hilary Kramer recently wrote. “In fact, such tech giants are so dominant, Facebook is being argued as a monopoly in some circles.”

I’ve never thought there was a good reason to buy SNAP, a money loser when you can own Facebook, a free-cash-flow generating machine. It’s like ordering a hamburger when you’re in the best steakhouse in the city.

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Cash-Rich Stocks to Buy: iRobot (IRBT)

Cash-Rich Stocks to Buy: iRobot (IRBT)
Source: Shutterstock

Cash-to-Market Cap: 11.0%

iRobot Corporation (NASDAQ:IRBT) makes products that keep your house looking clean, including the Roomba robot vacuum, the Braava robot mop and Mirra robot pool cleaner. It finished Q1 2017 with $275.7 million in cash and no long-term debt.

People are time-starved these days, so anything that can get some of that time back to enjoy life rather than cleaning up after yourself is going to be a winner in the long-term.

iRobot’s first-quarter results were a thing of beauty. Revenues increased 28.8% to $168.5 million while operating income was $21.6 million, 292.7% higher than a year earlier. U.S. and international revenues increased by 34% and 29%, respectively. In fiscal 2017, iRobot expects revenues and operating income of least $780 million and $60 million respectively.

In April, iRobot filed suit against Hoover, Stanley Black & Decker, Inc. (NYSE:SWK) and Bissell Homecare, which the company says are infringing on its patented technology. As iRobot moves into China and elsewhere, its intellectual property must be protected against unauthorized use.

“As a pioneer in consumer robots for the home, iRobot has invested significantly in the development of robotic technologies and the protection of our intellectual property,” said Colin Angle, chairman and chief executive officer of iRobot. “The filing of this litigation signals our commitment to protecting our investments.”

iRobot clearly has its eye on the prize.

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Cash-Rich Stocks to Buy: Columbia Sportswear (COLM)

Cash-to-Market Cap: 15.0%

Columbia Sportswear Company (NASDAQ:COLM) has been selling outdoor apparel and footwear for more than 70 years. It finished Q1 2017 with $590.5 million in cash and no long-term debt.

Once upon a time, I owned a Columbia Sportswear winter jacket, but my wife bought me a fancy parka the Christmas before last from Canada Goose Holdings (NYSE:GOOS), and that was the end of me wearing Columbia products.

However, my wife’s an animal lover, and when she found out about some of Canada Goose’s animal welfare issues, she let me know in no uncertain terms I wouldn’t be receiving any more gifts from the high-end parka maker.

Back to Columbia.

“Our updated 2017 outlook anticipates up to 4 percent earnings growth on approximately 3 percent net sales growth, driven by contributions from three of our four brands and all four of our geographic regions,” CEO Tim Boyle recently said about its first-quarter results. “In the midst of changing consumer shopping patterns, our portfolio of powerful brands and strong balance sheet give us the ability to continue to drive sustainable, profitable growth.”

The key to Boyle’s statement is “sustainable, profitable growth.”

COLM is up 20% annually over the past five years — 566 basis points better than the S&P 500. You won’t go wrong owning this stock.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2017/05/7-cash-rich-debt-free-stocks-to-buy-to-clobber-the-market/.

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