25 Cash Cows to Ride Out the Storm- Barron's

by: SA Editor Rachael Granby October 05, 2008 | about stocks: ABX / ACN / ADP / ALL / AMAT / AOC / BHI / CME / GD / HPQ / INTC / ITW / KO / MFC / MMM / MO / MRK / MSFT / NYX / PFE / SII / SLB / SYK / TEL / TROW    
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As the credit crisis grows more severe, cash-rich companies are looking increasingly attractive. Barron's Dimitra Defotis finds 25 cash cows likely to survive the current crisis. The companies are all U.S.-based, with market values of at least $10B, and with long-term debt-to-capital ratios well below the S&P 500's average of around 35%. The companies also have 2009 estimated earnings greater than the expected 2008 results.

Blue-chip stocks like Coca-Cola (KO) and Microsoft (MSFT) made the list, as did Illinois Tool Works (ITW), 3M (MMM) and CME Group (CME).

Some of the stocks offer a dividend as an added safety net to investors. Pfizer (PFE), for example, yields a healthy 6.8%, so investors shouldn't feel too despondent while waiting for a turnaround. Likewise, Allstate (ALL) and General Dynamics (GD) both provide respectable dividends.

For some cash-rich stocks, the question isn't whether they can survive the financial storm but whether now is the time to buy. Altria Group (MO) and T.Rowe Price (TROW) are less attractive bargains than some others on this list because they've fallen less than 5% over the last year.

The energy sector may boast some of the market's best values. Schlumberger (SLB), Smith International (SII) and Baker Hughes (BHI) should all benefit from a contracts backlog, even if oil and natural gas prices continue to fall.

  • The rest of the list: ABX, ACN, ADP, AMAT, AOC, HPQ, INTC, MFC, MRK, NYX, SYK, TEL.

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This article has 21 comments:

  •  
    Oct 05 08:28 AM
    All the thought of a monkey throwing darts at a blue chip stock listing
    Reply | Link to Comment
  •  
    Oct 05 08:52 AM
    well some of us borned cranky and will cranky.No matter what you do they ll never be happy.I don t mind the darts since I always do my homework and I like ideas. Don t live day to day ,instead get ready for the good days and there will be some, I am not suicidal yet. The only question mark for me is SYK , nice sector but moving 2 ways only, sideways or downways, why? I would like to buy some but after watching it for a year now I am not too impressed. Any thoughts to share with us on this one?
    Reply | Link to Comment
  •  
    Oct 05 09:24 AM
    I think KO should be added to "is now the time to buy" list. With the economy sinking, brand name sodas and bottled water are going to be a luxury many people will forego. Especially in emerging markets. I am looking for their earnings to take a hit unless the economy reverses the downward spiral.

    Dividend yields are nice if the stock price holds up. But a good yield isn't much of a safety net with the share price drop many companies have had. It takes too long to recover. And you still have to hope they don't cut the dividend. In my opinion, in this environment you are better off to forget dividends and look for companies that have a reasonable chance to avoid a further big selloff.
    Reply | Link to Comment
  •  
    Oct 05 10:36 AM
    Another strategy would be to buy stocks with nice dividends and hedge your stock purchase with the appropriate short-ETF. For instance, if you bought $5,000 BAC or PNW you might offset it with $2500 of SEF. Yes, if the market tuns around before you get out of SEF after this bailout you miss a little upside but you still have a nice dividend that you wouldn't have had otherwise.
    Reply | Link to Comment
  •  
    Oct 05 10:58 AM
    the insiders dont even trust each other at this point.you cant believe anybody about anything.homework & due diligence,charts,graph... are meaningless if the #s cant be believed.ceo lying is the name of the game.the bod's are self serving & i guess the word stockholder rarely comes up in the boardroom.so throw the dice,spin the wheel,etc. you may get lucky.
    Reply | Link to Comment
  •  
    Oct 05 11:24 AM
    thanks for the ideas
    Reply | Link to Comment
  •  
    Oct 05 02:37 PM
    I have always believed you will make more money in the market if you buy low and sell high. Barron's is a good provider of information, but I use them as a tool and not for my final decision. If you think back and look at the recommendations from last year to now when all of the analyst were making recommendations. None of them were on the money. Morgan Stanley and the financials were the worst. Buy good strong companies that are down and just sit till they go up.
    My choices are the gaming companies. MGM, LVS, WYNN and BYD. All way down and strong companies.
    Daniel Kowkabany
    Reply | Link to Comment
  •  
    Oct 05 04:09 PM
    Where's Apple?
    Reply | Link to Comment
  •  
    Oct 05 04:16 PM
    Re SYK - they are down less than most other stocks in past months.
    I wonder if there is pressure that they will have to lower prices because of health care expense concerns, no matter who wins the election.
    Reply | Link to Comment
  •  
    Oct 05 05:53 PM
    I like her thought process.. but the stocks are not in my line up. Ok.. I went defensive.. they do not move up much but they don't move down much either. A few great stocks which are now become a hold for the dividend they are starting to produce. NUE is 3.4 and climbing. Why not get something for your wait? Add on dips.can they go down another 10 points? maybe, probably but what the hell.. dollar cost them down. Of course this is if you sold into strength last week. I stay with FCX MO GE JPM and BAC. Pay me some divvies and I will wait a little more patiently. Sleep a little better in the evening.
    disclaimer: I am as pissed as anyone losing 66 K this qtr. in my 401K but trying to stay positive and look beyond this minute in time.
    Reply | Link to Comment
  •  
    Oct 05 08:34 PM
    The idea behind this article is to look for companies that are not over-leveraged and large enough to negotiate reasonable short-term loans with the battered finanicials whom are to keen risky what little capital they have on riskier small/mid sized companies. This article is about strategy and not tactics- good food for thought.
    Reply | Link to Comment
  •  
    Oct 05 10:35 PM
    I just love Apple down here, I'm more for big cash position than dividends, and I'll probably 2x put the earnings release (that worked last time). Maybe do that with a few this season, I know Fast Money doesn't want to get in front of the GE release this week. Everyone worries but why not pick the stocks you like and short the general market, or take a put position when you need it.
    Reply | Link to Comment
  •  
    Oct 06 06:37 AM
    Jim Rogers has said that water treatment stocks and agriculture was the way to go for the next bull run.

    Read his latest interview at: jimrogers-investments....
    Reply | Link to Comment
  •  
    Oct 06 01:39 PM
    I have to agree with 'notsomar'; who can you believe: nobody, nowhere, especially now. All the research, rating agencies (S&P, Fitch, Moody's), BOD's are full of self-serving, incompetent fools. The rating agencies should pay for this mess, along with the incompetent banks and greed on Wall Street who are taking us all down. So much for 'self-regulation' and laissez-faire in the market. Who can have any confidence in Wall Street now???
    Reply | Link to Comment
  •  
    Oct 06 07:48 PM
    i just bought positions in ABX with a 14.5 p/e roughly @ 33.79/share and NUE with a p/e hovering around 5 @ 30.95/share. i'll sit on them and see what happens.
    Reply | Link to Comment
  •  
    Oct 07 10:34 AM
    This is an environment where you want to focus on the lessons of many great investors and concentrate on Enduring Value. Businesses that have sustainable operations that will allow them to ride out this economic storm and benefit from re-investing into their own operations. There are a slew of companies trading at under 15x conservative forward earnings with a 3-4% yield that offer reasonable value for an investor.

    No, you might not make more than that dividend, but you're surely not going to lose as much as you would in other sectors such as large US financials or global equities facing crisis.
    Reply | Link to Comment
  •  
    Oct 07 02:37 PM
    Definitely some surprises on this list.

    No KFT, no JNJ, I guess no one consulted Mr. Buffett.
    Reply | Link to Comment
  •  
    Oct 07 06:34 PM
    Lame. A lot of these names (HPQ, MSFT, KO etc.) are going to get absolutely destroyed by the stronger dollar during Q3. I don't know why any rational human being would want to own these stocks this earning season.
    Reply | Link to Comment
  •  
    Oct 08 09:20 AM
    I ponder the idea of a stronger dollar and come up with "stronger than what"
    Reply | Link to Comment
  •  
    Oct 08 10:32 PM
    Excuse Me - Cash Cows? What are you thinking?

    KO was $58 a year ago, now its $47.41 (down 3.83% today).
    MSFT was $30 a year ago, now its $23.01 (down 0.95% today)
    MMM was $95 a year ago, now its $57.37 (down 4.34% today)
    SLB was $104 a year ago, now its $66.14 (down 0.99% today)
    TROW was $57 a year ago, now its $46.05 (donw 1.98% today).

    CASH COWS FOR WHO? WALL STREET? THE CORPORATIONS? Sure, go ahead and BUY NOW IN THE GREAT DEPRESSION # 2 and catch a FALLING KNIFE.

    You either are a Wall Street/Corporate Stooge or you are misinformed. What difference does a small dividend make if you are losing 25% per year?


    Reply | Link to Comment
  •  
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