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7 Best Cash Cow Stocks to Buy for Stable Returns

  • Investing in several of the best cash cow stocks may help grow your portfolio in the second half of the year.
  • Autozone (AZO): The auto parts supplier is well-positioned to benefit from individuals keeping their cars longer.
  • Bristol-Myers Squibb (BMY): This healthcare play may just be what investors need to shield from rising inflation.
  • Cisco Systems (CSCO): The company's total annualized recurring revenue grew 11% year-over-year.
  • KLA (KLAC): 2022 marks the seventh consecutive year of growth for this chipmaker.
  • Kroger (KR): Accelerating its digital sales channels has enabled this retailer to stay competitive despite significant macroeconomic headwinds.
  • McKesson (MCK): The healthcare services name has been executing well and beating the market.
  • Moderna (MRNA): Moderna is hoping to secure an additional supply deal with the U.S. government for its omicron booster vaccine.
Best Cash Cow Stocks - 7 Best Cash Cow Stocks to Buy for Stable Returns

Source: Reel2Reel/shutterstock.com

Investors seeking shelter from the market selloff are looking for some of the best cash cow stocks. Such a move is not surprising given that robust cash flow becomes more even valuable during economic downturns. For instance, the Pacer US Cash Cows 100 ETF (BATS:COWZ) is currently down 6.6% year-to-date (YTD) compared with the 17% loss for the S&P 500 index. The fund has seen assets under management skyrocket from $1.3 billion at the start of 2022 to the current $5.9 billion.

Amid the market volatility and interest rate hikes, investors are increasingly focused on businesses with strong cash flows and healthy balance sheets. These firms typically boast positive earnings and generate more cash than they need to run the business.

Moreover, they often have flexibility for continued dividend payments and stock repurchases despite macroeconomic headwinds. In addition, the market selloff provides these cash cow stocks with buying opportunities to invest in new growth opportunities at attractive valuations.

With that information, here are seven of the best cash cow stocks that could gain traction in the rest of the year:

Ticker Company Price
AZO AutoZone, Inc. $2,140.74
BMY Bristol-Myers Squibb Company $73.04
CSCO Cisco Systems, Inc. $44.54
KLAC KLA Corporation $355.04
KR The Kroger Co. $46.22
MCK McKesson Corporation $331.33
MRNA Modern, Inc. $164.92

Best Cash Cow Stocks: Autozone (AZO)

An AutoZone (AZO) storefront in Saint Augustine, Florida.
Source: Robert Gregory Griffeth / Shutterstock.com
  • 52-week range: $1,503.30 – $2,267.40

Our first cash cow stock is Autozone(NYSE:AZO), a leading retailer and distributor of automotive replacement parts and accessories. The auto shop operates in the U.S., as well as in several Latin American countries.

AZO announced third quarter (Q3) financials on May 24. Revenue increased 5.9% year-over-year (YOY) to $3.9 billion. Diluted earnings per share (or EPS) increased 9.6% YOY to $29.03, up from $26.48 for the prior-year quarter. Cash and equivalents ended the period at $263 million.

The chip shortage plus as inflation have led to soaring prices in both new and used vehicle markets. Due to rising prices, people keep their cars longer, offering tailwinds for retail parts suppliers. Domestic same-store sales increased by 2.6% YOY. The gross margin for the quarter stood at a robust 51%.

According to a recent update, the market size for auto parts stores is expected to grow by 2.6% YOY to $73.6 billion in 2022.  Wall Street expects Autozone to benefit from this expansion.

AZO stock is up about 3% YTD and 40% over the past year. Shares are changing hands at 17.1 times forward earnings and 2.9 times sales. Meanwhile, the 12-month price forecast for AZO stands at $2,250.

Bristol-Myers Squibb (BMY)

Bristol-Myers (BMY) logo at the top of a cellphone.
Source: Piotr Swat / Shutterstock.com
  • 52-week range: $53.22 – $80.59

Next up is the biopharma heavyweight Bristol-Myers Squibb (NYSE:BMY). Its drugs and therapies mainly focus on cardiovascular, oncology, and immune disorders.

On Apr. 29, Bristol-Myers Squibb released Q1 results. Total revenues came in at $11.65 billion, representing an increase of 7% YOY adjusted for foreign currency. Adjusted EPS grew 13% YOY to $1.96, up from $1.74 a year ago. Cash and equivalents ended the quarter at $12.37 billion.

The pharma group’s top line growth was driven primarily by in-line products Eliquis and Opdivo. Revenues for Eliquis and Opdivo grew by 11% and 12%, respectively. In addition, new product portfolio revenues more than doubled to $350 million YOY, driven by higher demand for Abecma, Breyanzi, and Reblozy.

Meanwhile, the Food and Drug Administration (FDA) recently approved Bristol-Myers Squibb’s CAR T cell therapy Breyanzi for relapsed or refractory large B-cell lymphoma (LBCL). Wall Street will be watching how this approval can contribute to sales.

So far in 2022, BMY stock is up over 20% and supports a hefty 2.9% dividend yield. Shares are trading at 10.1 times forward earnings and 3.6 times sales. Wall Street’s 12-month median price forecast for Bristol-Myers Squibb stands at $82. 

Best Cash Cow Stocks: Cisco Systems (CSCO)

cisco (CSCO) logo on an office building
Source: Ken Wolter / Shutterstock.com
  • 52-week range: $40.82 – $64.28

Networking solutions leader Cisco Systems (NASDAQ:CSCO) is our next cash cow stock. Metrics suggest in the ethernet switch and router market, Cisco’s market share is close to 40%.

The tech giant reported Q3 financials on May 18. The $12.8 billion revenue was flat YOY. However, adjusted EPS grew 5% YOY to 87 cents. Cash and equivalents ended the quarter at $20.1 billion. Cisco benefited from solid demand with product order growth up 8% YOY. Total annualized recurring revenue grew 11% YOY to $22.4 billion. Product backlog ended the period at more than $15 billion. Management projects total revenue for the fiscal year 2022 to grow 2% to 3% YOY.

In mid-June, Cisco announced Panoptica and Calisti, the latest additions to Cisco’s suite of API-first solutions, which “remove barriers to enterprise automation, increase productivity, help shorten sales cycles, and reduce operating expenses.”

CSCO shares are down about 32% YTD, offering a robust dividend yield of 3.5%. Shares are trading at 12 times forward earnings and 3.5 times sales. Analysts’ 12-month price forecast for Cisco stands at $52.

KLA Corporation (KLAC)

  • 52-week range: $282.83 – $457.12

KLA Corporation (NASDAQ:KLAC) offers crucial process control and yield management solutions for the semiconductor industry. The company is the market leader worldwide in process control equipment. Its customers rely on KLA’s products to scans wafers and semiconductors to catch imperfections during semiconductor production. Given the number of steps required to manufacture advanced semiconductors, process control is critical.

Management issued Q3 metrics on Apr. 28. Revenue came in at $2.29 billion, up 27% YOY. Adjusted net income jumped to $5.13 per diluted share, up from $3.85 a year ago. Cash and equivalents ended the period at $1.42 billion.

Wall Street has been impressed with the continuous growth in KLAC’s revenue for the past seven years. The shift to 3 nm nodes in the industry has become a key growth driver.

So far in 2022, KLAC stock is down 17%. Shares look too cheap for a highly profitable growth stock at just 12.3 times forward earnings and 5.2 times sales. Meanwhile, the dividend yield currently stands at 1.35%. The 12-month median price forecast for KLA stock stands at $392.50.

Best Cash Cow Stocks: Kroger (KR)

A Kroger (KR) logo on a building.
Source: Jonathan Weiss / Shutterstock.com
  • 52-week range: $37.26 – $62.78

Prominent grocer name Kroger (NYSE:KR) operates more than 2,700 supermarkets and 1,600 gas stations under several banners. Its market share stateside is around 8%.

The food retailer announced Q1 results on Mar. 3. Revenue increased 8% YOY to $44.6 billion. Kroger increased its adjusted EPS by 22% YOY to $1.45, compared to $1.19 in the prior-year period. Cash and equivalents ended the period at $1.38 billion.

Despite rising supply-chain costs, its strategy of “Leading With Fresh and Accelerating With Digital” has allowed the retailer to remain highly competitive. Same-store sales, excluding fuel, increased by a robust 4.1%. Adjusted operating profit soared 16.4% YOY to $1.6 billion.

Meanwhile, management raised its annual dividend by 24% from $0.84 to $1.04. Kroger boasts 16 consecutive years of dividend increases and currently supports a 2.1% dividend yield.

KR stock is up nearly 8% YTD. It sells at a discount to its peers at 12.3 times forward earnings and just 0.25 times sales. The 12-month median price forecast for Kroger stock is $54 

McKesson (MCK)

McKesson headquarters in Irving, TX
Source: JHVEPhoto / Shutterstock.com
  • 52-week range: $186.61 – $339.94

Our next cash cow stock is McKesson (NYSE:MCK), a leading healthcare services company. It distributes pharmaceuticals and medical supplies. It additionally provides data as well as technology solutions. Its market shares stateside is well over 7%.

MCK issued Q4 results on May 5. Revenue grew 12% YOY to $66.1 billion. Adjusted diluted EPS increased 15% to $5.83, up from $5.05 in the prior-year quarter. Free cash flow for the fiscal 2022 year stood at $3.9 billion. Cash and equivalents ended the period at $3.53 billion.

In 2021, the company announced a planned exit from the European market. Management is focused on improving productivity through automation and robotics, especially in its distribution business.

Meanwhile, in late June, McKesson and HCA Healthcare (NYSE:HCAannounced an agreement to form a joint venture combining McKesson’s U.S. Oncology Research and HCA Healthcare’s Sarah Cannon Research Institute.

MCK shares are up more than 30% YTD and 71% over the past year. Forward price-to-earnings and price-to-sales metrics are 14.1x and 0.2x, respectively, indicating fair pricing. Wall Street’s 12-month median price forecast for the healthcare play stands at $375.

Best Cash Cow Stocks: Moderna (MRNA)

red text reads "moderna" on a light blue background. there is a bottle of liquid vaccine next to a medical needle
Source: diy13 / Shutterstock
  • 52-week range: $115.61 – $497.49

The final cash cow stock on our list is the biotech name Moderna (NASDAQ:MRNA), which has become a household name with its Covid-19 vaccine. It is also focused on developing messenger RNA therapeutics and vaccines for infectious, cardiovascular, and immuno-oncology diseases.

Moderna released Q1 results on May 4. Revenue jumped 321% YOY to $6.1 billion, driven by sales of its Spikevax coronavirus vaccine. Diluted EPS more than tripled YOY to $8.58 per share, up from $2.84 a year ago. Cash and equivalents ended the year at $19.3 billion.

While Moderna has other promising pipeline candidates, for now it is dependent on coronavirus vaccine revenues. In the months ahead, Moderna hopes to gain an additional supply deal for its omicron booster with the U.S. government.

Meanwhile, Moderna recently announced an agreement with the British government to establish an mRNA Innovation and Technology Center in the U.K. This vaccine manufacturing facility should offer pandemic response capabilities through vaccine development.

So far in 2022, MRNA stock is down 32%. Shares are changing hands at 6 times forward earnings and 2.85 times sales. The 12-month price forecast for Moderna is $199.

On the date of publication, Tezcan Gecgil, Ph.D., did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


Article printed from InvestorPlace Media, https://investorplace.com/best-cash-cow-stocks/.

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