Cash is king. It not only drives growth, but it permits flexibility. And it’s the reason why so many blue-chip stocks are flush with it.
Blue-chip stocks with tons of cash are more likely to survive downturns in business or the economy, and can choose whether to deploy their greenbacks toward growth, R&D, share buybacks or dividends.
When thinking about which stocks to buy for my forthcoming stock advisory newsletter, The Liberty Portfolio, blue-chip stocks with tons of cash are going to be important players.
Here are seven blue-chip stocks to consider for your own portfolio that happens to have tons of cash.
Blue-Chip Stocks: Apple (AAPL)
Cash Balance: $247 billion
What It Should Do: Increase dividends
Apple Inc. (NASDAQ:AAPL) has to top the list of blue-chip stocks to buy with lots of cash. AAPL has $247 billion of cash on hand, although most of it is stuck overseas.
However, we are in a new era, and it is an era where President Trump and Congress may lower the corporate tax rate to 15%. If that happens, the $230 billion of cash it holds overseas will be repatriated. That will leave Apple with $212 billion of cash.
This insane amount of money will be partially used to bump the dividend, probably by as much as $4 per share over time, pushing AAPL stock into income stock territory.
Blue-Chip Stocks: General Electric (GE)
Cash Balance: $92 billion
What It Should Do: M&A, Share buybacks
General Electric Company (NYSE:GE) is not the company it once was, and I recently wrote that I don’t think you want to be buying GE stock at $30 per share. However, it has about $92 billion in cash on hand, and most of it is overseas, as well.
Repatriating that money would leave it with a sizable $77 billion cash hoard. GE is already loved by income investors, so my guess is that GE would use the cash to continue making acquisitions and foolishly buying back stock.
That will boost per-share earnings and create inorganic growth that keeps the GE name alive as far as investing is concerned.
Blue-Chip Stocks: Johnson & Johnson (JNJ)
Cash Balance: $40 billion
What It Should Do: Increase dividends, R&D, M&A
I’m not keen on Johnson & Johnson (NYSE:JNJ) despite the fact that it is one of these blue-chip stocks that has recently hit all-time highs. I’m mystified because it isn’t growing net income and is really struggling as a company.
Still, with about $40 billion in cash and more than $13 billion in fairly predictable annual cash flow, JNJ should bump up its dividend by another $1 per share, and plow the rest into R&D and acquisitions.
It needs to grow, and right now it’s just a sitting duck that’s insanely overpriced.
Blue-Chip Stocks: Coca-Cola (KO)
Cash Balance: $25 billion
What It Should Do: M&A
The Coca-Cola Co (NYSE:KO) is in a bit of trouble, as the world moves away from sugary and unhealthy drinks. Because it has $25 billion of cash on hand, about $8 billion in annual and predictable free cash flow and needs to find a vision, it should deploy that cash by making a bold acquisition.
It needs to buy some massive group of beverage companies that are growing organically and have caught consumers’ taste. That’s the only way this legend is going to be able to move into the future. Otherwise, it can just settle into flat-growth mode and pay an increasingly uncompetitive 3.5% yield.
Blue-Chip Stocks: Microsoft (MSFT)
Cash Balance: $132 billion
What It Should Do: Increase dividends, M&A, R&D
Microsoft Corporation (NASDAQ:MSFT) is in the enviable position of having about $132 billion of cash on hand, while also having settled comfortably into Peter Lynch stalwart territory.
MSFT only pays out less than half of its reliable $25 billion to $27 billion of free cash flow. It can easily bump its dividend by another $1 per share and push the yield up toward 4%, and even higher if it wished to.
Then it could drop a huge chunk of money into a mega-acquisition that would push it into growth stock territory again. Or it could just keep trying to expand its footprint with big R&D spends.
Blue-Chip Stocks: Alphabet (GOOGL)
Cash Balance: $92 billion
What It Should Do: Nothing
GOOGL needs to move beyond being a digital billboard and venture capital incubator, but I don’t think it needs to rush to do anything because its core business is still growing nicely and it is undervalued.
I say it should just hold onto that cash and wait until growth flags before making a bold move into a growth arena with a big acquisition. Right now, though, investors aren’t even demanding a dividend, so I say, hold onto that cash.
Blue-Chip Stocks: Pfizer (PFE)
Cash Balance: $38 billion
What It Should Do: R&D
Pfizer Inc. (NYSE:PFE) sits on almost $40 billion in cash, yet it finds itself with a growth problem, with earnings growth slogging along at 6.5% annually.
It’s trading at a ridiculous 12 times forward earnings multiple. Like its other pharma and biotech counterparts, it needs a serious jump-start, and the only real way for that to occur is to seriously ramp up R&D. It needs to find blockbuster drugs and it has the money to do so.
It can’t just buy up little things here and there. A Pfizer for the future is a Pfizer that revisits what made it great in its past.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at [email protected].