Our theme of Cash-Rich Stocks filters for consistently profitable and growing companies within the S&P 500 that have a net cash position (total cash and investments less debt) that stands at 25% or more of their total assets. The theme has outperformed the broader markets considerably, with year-to-date returns standing at about 46% versus about 19% for the S&P 500. Similarly, the theme returned 116% since the end of 2019, compared to the S&P 500 which was up by roughly 38% over the same period. These stocks could be attractive to investors, as their adequate liquidity makes them less risky, while their relatively asset-light business models could give them the potential to offer higher shareholder returns in the long run. Moreover, with the U.S. Federal Reserve expected to reduce bond-buying activity later this year, there is a real possibility that lower liquidity could eventually impact the stock markets. However, cash-rich companies could prove more resilient under these conditions.
Within our theme, Fortinet (FTNT), a company that provides cybersecurity-related hardware and software has been the strongest performer, with its stock up by about 102% year-to-date. Nvidia (NVDA), a semiconductor company best known for its graphic processing units (GPUs), has also fared exceedingly well, with its stock up 70% this year. On the other side, health insurance major Humana (HUM) stock has been the weakest performer in the theme, declining by 2% year-to-date.
[8/24/2021] Cash-Rich Companies Are Outperforming Big This Year
Our theme of Cash-Rich Stocks filters for consistently profitable and growing companies within the S&P 500 that have a net cash position (total cash and investments less debt) that stands at 25% or more of their total assets. The theme has outperformed the broader markets considerably, with year-to-date returns standing at about 48% versus about 20% for the S&P 500. Similarly, the theme returned 118% since the end of 2019, compared to the S&P 500 which was up by roughly 39% over the same period. These companies could be attractive to investors, as their adequate liquidity makes them less risky, while their relatively asset-light business models could give them the potential to offer higher shareholder returns in the long run. These companies also have a lot of flexibility to double down on expansions and mergers-and-acquisition activity. Below is an overview of some of the stocks in the theme and why they have outperformed this year. Check out our theme on Cash-Rich Stocks for the complete list of stocks and filter criteria.
Fortinet (FTNT) is a company that provides cybersecurity-related hardware and software. The stock has been the strongest performer within our theme rising by about 107% year-to-date, driven by strong demand for security products following multiple high-profile hacks and data breaches this year.
FTNT
Nvidia (NVDA) is a semiconductor company best known for its graphic processing units (GPUs). The stock has rallied about 68% this year so far, driven by strong demand for GPUs from the gaming and server market. The company’s recent stock split has also helped its returns.
Intuit (INTU) is a company that specializes in financial and tax preparation software. The stock is up 45% year-to-date, driven partly by a strong performance by the company’s consumer segment, which benefits as more people opt to file tax returns on their own, rather than visiting an accountant through Covid-19.
Regeneron Pharmaceuticals (REGN), a biotechnology company, has seen its stock rise by about 38% year-to-date, driven by strong demand for REGEN-COV, the company’s antibody therapy for Covid-19. Separately, the company is also poised to see steady growth for Eylea, an ophthalmology drug, and Dupixent, which is used to treat eczema and asthma.
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