When you are looking for cash-rich stocks to buy, one thing that you can always put in the plus category is free cash flow. It’s nice to know that your newly acquired stock represents a company that not only can pay its bills, but has the financial flexibility to make acquisitions, issue dividends or buy back shares.
The latter two are particularly valuable for investors – a company that can afford to repay its investors through a quarterly or monthly dividend becomes that much more valuable.
Dividend payments can help provide a dependable income stream in retirement, or you can always dump those dividends back into the stock to buy more shares to increase your portfolio.
Companies that buy back shares take the number of available shares off the table, making those that remain all the much more valuable.
My Portfolio Grader tool has a great feature that helps you with these kinds of insights. The Portfolio Grader evaluates grades stocks on an “A” through “F” scale based on both quantitative factors as wells as fundamental measure such as sales growth, operating margin growth, earnings momentum, analyst sentiment – and cash flow, among other measures.
You can delve more into the Portfolio Grader to see all the ways it can help you build your portfolio. But for now, let’s use it to look for cash-rich stocks to buy with plenty of free cash flow.
|SQM||Sociedad Quimica y Minera de Chile||$96.70|
Based in Brazil, Vale (NYSE:VALE) is the second-largest mining company in the world, with operations in 30 countries.
It also has interests in railways, ports, terminals, energy and steelmaking. It’s the world’s biggest miner of iron ore and nickel, which puts it in an enviable place, as nickel is a key component in making lithium-iron battery cells.
Vale, however, is one of our cash-rich stocks to buy because it’s blessed with plenty of cash and the willingness to share it with shareholders. The company’s dividend yield is more than 10% right now, and Vale holds free cash flow of $1.94 billion – so there’s no real fear of that dividend going away.
Currently VALE stock has an overall rating of “B” in the Portfolio Grader, with a cash flow rating of “A.”
If you didn’t know about pharmaceutical giant Pfizer (NYSE:PFE) before the Covid-19 pandemic, you surely know all about them now. The company was one of the first to come up with a vaccine for the coronavirus and it continues to churn out vaccines and boosters.
On top of that, Pfizer recently released results for the Phase 3 study of its respiratory syncytial virus, or RSV, vaccine that, when administered to pregnant women, is showing success in preventing infants from being born with RSV disease.
Pfizer boasts free cash flow of $7.42 billion, giving it plenty of room to make some moves, continue investing in the company or returning cash to shareholders. It has a “B” rating in cash flow and overall in the Portfolio Grader.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is an interesting name on this list because it is riding high in two different ways.
First, it’s a major producer of lithium, which is needed for lithium-ion batteries that power laptops and cell phones. The price of lithium is up by nearly 200% over the last year, which means massive profits for companies like SQM.
The company is also benefiting from the increase in fertilizer prices brought on largely by Russia’s invasion of Ukraine. Russia produces about 25% of the world’s nitrogen fertilizer, but sanctions against Moscow mean that product is out of reach to the West.
The stock price doubled from January to May before pulling back amid concerns of a global recession, but the stock still has plenty of value. Add to that free cash flow of nearly $200 million and a healthy dividend yield of more than 8%, and you see what makes it one of the best cash-rich stocks to buy.
It has a “B” rating in cash flow and an “A” rating overall in the Portfolio Grader.
Qualcomm (NASDAQ:QCOM) is a blue-chip stock in an enviable place. By making digital wireless telecom products such as circuits and system software for wireless devices, Qualcomm is on the forefront of the 5G revolution.
The fifth-generation mobile network is a game-changing advancement for investors. With improved multi-gigabit peak data speeds and better reliability, 5G technology allows people with a mobile connection to have the same kind of reliability and data speeds as someone with a wired connection.
That means the growth of smart cities, better streaming video, improved AI and VR experiences, advancements in machine learning, improved experiences for sports betting and gaming, more virtual medical appointments – the applications are truly limitless.
With free cash flow of $812 million, QCOM stock has a “B” cash flow and a “B” overall rating in the Portfolio Grader.
CVS Health (CVS)
Rhode Island-based pharmacy retailer CVS Health (NYSE:CVS) has more than 9,000 locations, giving it a massive footprint.
It was a key player in the rollout of Covid-19 vaccinations, as it administered more than 32 million tests in 2021 and more than 59 million vaccinations.
It also just issued a great third-quarter earnings report, which included revenue of $81.16 billion and EPS of $2.09 per share – analysts had expected only $76.75 billion in revenue and $1.99 per share in revenue.
That performance allowed CVS to generate $9.1 billion in cash flow from operations, and return $726 million back to shareholders in the form of dividends.
CVS is also taking a $5.2 billion charge for a settlement relating to its role in the opioid crisis – not a great number, but at least investors don’t have to worry about the settlement hanging over their heads moving forward. The money has been paid and CVS can look forward.
CVS currently has a “B” cash flow and “B” overall rating in the Portfolio Grader.
Olin Corporation (OLN)
Olin Corporation (NYSE:OLN) is a bit of a hybrid – it makes ammunition as well as chemicals such as chlorine and sodium hydroxide. It’s likely best known for its Winchester-branded ammunition, but it also makes chlorine products, industrial bleach, and hydrochloric acid.
Maybe that doesn’t sound very exciting, but remember – it’s the flashy, so-called exciting tech companies that are among the worst performers in the market this year. OLN stock, meanwhile, is down by less than 5%, which is much better than the Dow Jones Industrial Average.
Barclays recently increased its price target on OLN stock from $54 to $60.
Olin reports free cash flow of $486 million, helping give it a “B” cash flow rating and a “B” overall rating in the Portfolio Grader.
Pinduoduo (NASDAQ:PDD) is an e-commerce play in China. The company operates a retail platform that’s aimed at the agriculture industry, connecting farmers directly with potential customers. It since has expanded its reach to include household items, clothing and electronics.
Last year, it had more than 868 million active buyers, and the merchandise traded on the Pinduoduo platform increased from $72.7 billion in 2018 to $383 billion in 2021.
Pinduoduo is interesting because it supports group buying. Merchants list an item and set two prices – one for individual buyers and another (usually lower) for group purchases. The idea is to increase the volume of sales while encouraging buyers to work together with friends and family to secure lower prices with a bulk purchase.
Earnings for the fiscal first quarter were huge – revenue of $31.44 billion and EPS of $7.54 easily beat expectations of $23.56 billion in revenue and EPS of $2.84.
On top of that, PDD has just more than $3 billion in cash on hand – plenty of money to support whatever comes next for the e-commerce play.
PDD stock has a “B” cash flow rating and a “B” overall rating in the Portfolio Grader.