10 Cash-Rich Stocks to Buy According to Hedge Funds

In this article, we will take a look at the 10 cash-rich stocks to buy according to hedge funds.

The US and the global economy are dealing with high inflation, causing the Federal Reserve and other central banks around the world to raise benchmark interest rates. Moreover, the conflict between Russia and Ukraine since February 2022 and COVID-related updates from China have also played a significant role in increasing global uncertainty and escalating recession-related concerns. All these adverse developments have resulted in the leading market indices like the S&P 500 Index, the Dow Jones Industrial Average (DJIA) Index, and the NASDAQ Composite Index posting a year-to-date (YTD) decline of 19.3%, 8.6%, and 32.9%, respectively.

Under such circumstances, the famous phrase “cash is king” comes into play often. This means that during uncertain macroeconomic times, cash becomes more valuable than any other form of investment as it provides strength to the balance sheet and acts as a safety net. Popular companies such as Alphabet Inc. (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are considered among the best cash-rich stocks to buy according to hedge funds. These companies have also used their cash balances strategically to acquire assets at attractive prices, which has helped these corporations combat the market downturn more aggressively.

Photo by Nathan Dumlao on Unsplash

Our Methodology

In this article, we have shortlisted stocks with strong cash reserves as of Q3 2022 and have ranked them according to the hedge fund sentiment. Experts believe these companies are in a stable position to weather the economic downturn and support their growth plans in the coming quarters. Insider Monkey uses its proprietary database of 920 elite funds to track hedge fund holdings as of the third quarter of the year.

10 Cash-Rich Stocks To Buy According To Hedge Funds

10. General Electric Company (NYSE:GE)

Number of Hedge Fund Holders: 53

Latest Cash and Short-Term Investments: $16.19 billion

General Electric Company (NYSE:GE) is a Boston, Massachusetts-based industrial conglomerate.

The company intends to spin off its healthcare division as a separate publicly listed entity in the first week of 2023. However, it must be noted that the cash balance would not be impacted significantly as a cash balance of $500 million has been allocated to the healthcare division as of September 30. Furthermore, General Electric Company (NYSE:GE) will also hold a 19.9% stake in the newly spun-off entity.

Not only numerous hedge funds are invested in General Electric Company (NYSE:GE), but analysts are also bullish on the stock. Julian Mitchell at Barclays assigned General Electric Company (NYSE:GE) stock a target price of $96 along with an Overweight rating on December 16. The analyst updated his financial estimates to incorporate the impact of spinning off the healthcare business. Experts also believe that the industrial giants are finding pricing support, an improvement in costs, and ease in the supply chain that would be favorable for the bottom line.

9. General Motors Company (NYSE:GM)

Number of Hedge Fund Holders: 74

Latest Cash and Short-Term Investments: $26.21 billion

General Motors Company (NYSE:GM) is a Detroit, Michigan-based automaker that is focused on becoming a leader in the field of electric vehicles (EV).

During Investor Day in November, the company shared its electrification plan with analysts and investors. Dan Ives at Wedbush was impressed by the presentation and thinks that General Motors Company (NYSE:GM) has taken a bullish stance on the overall demand for EVs and its battery production targets. The management looks very confident in achieving those targets, and the significant cash reserve can play an integral part. General Motors Company (NYSE:GM) anticipates its top line to compound annually by 12% between the 2023 – 2025 period to reach the $225 billion milestone.

The EV segment is expected to contribute $50 billion to the top line by 2025. In August 2022, General Motors Company (NYSE:GM) restored its quarterly dividend after suspending it at the start of the pandemic and also increased its share buyback plan from $3.3 billion to $5 billion.

Here’s what Chartwell Investment Partners said about General Motors Company (NYSE:GM) in its Q2 2022 investor letter:

“The three worst-performing stocks in the Dividend Equity accounts includes General Motors (NYSE:GM, 2.4%), down 27.4%. GM posted solid first-quarter earnings, but, supply issues continue to be a headwind and the market appears to be “pricing-in” at least a mild recession. The question seems to be: by the time the supply constraints are resolved, will we be in a much-worse economic scenario that will “hit” the demand side?

After a couple quarters of higher-than-average trading, Q2 was extremely light in both the Growth & Balanced and Dividend Equity accounts (see below). After trimming GM earlier in the year at much higher price levels, we added back to the position. Now trading at $32 per share, GM’s P/E multiple on 2022 earnings estimates is below 5 times its annual earnings per share, which we think is very attractive and is already pricing-in at least a mild recession.”

8. Pfizer Inc. (NYSE:PFE)

Number of Hedge Fund Holders: 77

Latest Cash and Short-Term Investments: $36.13 billion

Pfizer Inc. (NYSE:PFE) is a New York-based pharmaceutical company.

Experts believe Pfizer Inc. (NYSE:PFE) has built up its cash position due to the tailwinds from the COVID-19 vaccine. The company is now using the cash balance intelligently to acquire companies that integrate with its operations to create synergies and also expand its offerings. Pfizer Inc. (NYSE:PFE) announced the acquisition of New Haven, Connecticut-based Biohaven Pharmaceuticals for a sum of $11.6 billion in May 2022. Following that, the company announced the takeover of San Francisco, California-based Global Blood Therapeutics (GBT) for $5.4 billion.

On December 13, Chris Shibutani at Goldman Sachs upgraded Pfizer Inc. (NYSE:PFE) stock from a Neutral to a Buy rating and increased the target price from $47 to $60. The analyst highlighted the positive pipeline of products that are expected to outperform estimates following their commercial launch in 2023. This can drive significant value to the base business of the company. These developments have also reduced Pfizer Inc.’s (NYSE:PFE) reliance on the prolonged outperformance of COVID-19 vaccines.

Here’s what Diamond Hill Capital said about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:

“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”

7. Berkshire Hathaway Inc. (NYSE:BRK-B)

Number of Hedge Fund Holders: 104

Latest Cash and Short-Term Investments: $108.96 billion

Berkshire Hathaway Inc. (NYSE:BRK-B) is an Omaha, Nebraska-based diversified conglomerate led by famous billionaire philanthropist Warren Buffett. The company owns leading firms in the energy generation and distribution, insurance, manufacturing, rail transportation, and retail businesses.

Berkshire Hathaway Inc. (NYSE:BRK-B) is the biggest hedge fund holder in leading companies like Apple, Inc. (NASDAQ:AAPL) and Bank of America Corporation (NYSE:BAC). The company has heavily diverted cash resources to increase its exposure in the oil and gas exploration and production (E&P) industry by taking a 20.9% stake in Occidental Petroleum Corporation (NYSE:OXY). The company has already received a go-ahead from the US Federal Energy Regulatory Commission (FERC) to buy as much as 50% of the company. Berkshire Hathaway Inc. (NYSE:BRK-B) also used its cash position to complete the $11.6 billion acquisition of New York-based insurance company Alleghany in March 2022. Meanwhile, during Q3 2022, Berkshire Hathaway Inc. (NYSE:BRK-B) also revealed a $4.1 billion stake in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).

Here’s what BerkHere’sHathaway said about Berkshire Hathaway Inc. (NYSE:BRK-B) in its Q4 2021 investor letter:

“BERKSHIRE HATHAWAY INC.

To the Shareholders of Berkshire Hathaway Inc.:

Charlie Munger, my long-time partner, and I have the job of managing a portion of your savings. We are honored by your trust.

Our position carries with it the responsibility to report to you what we would like to know if we were the absentee owner and you were the manager. We enjoy communicating directly with you through this annual letter, and through the annual meeting as well.

Our policy is to treat all shareholders equally. Therefore, we do not hold discussions with analysts nor large institutions. Whenever possible, also, we release important communications on Saturday mornings in order to maximize the time for shareholders and the media to absorb the news before markets open on Monday.

A wealth of Berkshire facts and figures are set forth in the annual 10-K that the company regularly files with the S.E.C. and that we reproduce on pages K-1 – K-119. Some shareholders will find this detail engrossing; others will simply prefer to learn what Charlie and I believe is new or interesting at Berkshire.

Alas, there was little action of that sort in 2021. We did, though, make reasonable progress in increasing the intrinsic value of your shares. That task has been my primary duty for 57 years. And it will continue to be.

What You Own

Berkshire owns a wide variety of businesses, some in their entirety, some only in part. The second group largely consists of marketable common stocks of major American companies. Additionally, we own a few non-U.S. equities and participate in several joint ventures or other collaborative activities.

Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers…” (Click here to see the full text)

6. UnitedHealth Group Incorporated (NYSE:UNH)

Number of Hedge Fund Holders: 110

Latest Cash and Short-Term Investments: $45.24 billion

UnitedHealth Group Incorporated (NYSE:UNH) is a Minnesota-based diversified healthcare and insurance corporation.

The company invested $5.40 billion to acquire Lafayette, Louisiana-based LHC Group in March 2022, followed by a $1.25 billion acquisition of Leeds, United Kingdom-based EMIS Group. Such acquisitions helped UnitedHealth Group Incorporated (NYSE:UNH) insulate itself from a cyclical economic downturn. The company intends to give back $5.45 billion to its shareholders as dividends and conduct a total share buyback of $5 billion to $6 billion for the year.

In a note issued to investors on December 7, A.J. Rice at Credit Suisse increased the price target on UnitedHealth Group Incorporated (NYSE:UNH) from $590 to $610 and maintained an Outperform rating on the stock. Experts think that scale is an integral factor in the health insurance business, and this plays in favor of UnitedHealth Group Incorporated (NYSE:UNH) as it is the biggest insurance company across numerous sub-categories.

Stewart Asset Management shared its stance on UnitedHealth Group Incorporated (NYSE:UNH) in its Q3 2022 investor letter. Here’s what the firm said:

“Looking at the Great Recession which began at year-end 2007 and lasted to mid-year 2009 is helpful too. Our four largest current holdings in the portfolio weathered that period well. UnitedHealth’s (NYSE:UNH) earnings were resilient. While it reported modestly down earnings in 2008, its earnings rebounded quickly to record highs in 2010 and the shares responded strongly in anticipation of this.”

In addition to UnitedHealtHere’sp Incorporated (NYSE:UNH), companies such as Alphabet Inc. (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are also on our list of the cash-rich stocks to buy according to hedge funds.

5. Apple Inc. (NASDAQ:AAPL)

Number of Hedge Fund Holders: 140

Latest Cash and Short-Term Investments: $48.3 billion

Apple Inc. (NASDAQ:AAPL) is a Cupertino, California-based technology company.

Apple Inc. (NASDAQ:AAPL) is also considered amongst the best cash-rich stocks to buy according to hedge funds. The company has allocated $550 billion in the last decade to repurchase its shares. This has enabled Apple Inc. (NASDAQ:AAPL) to report healthier earnings and shift the focus of investors away from weak demand and production-related challenges. In a note issued to investors on December 21, Jim Suva at Citi shared that the regulatory overhang related to the tech giants offering access to TikTok through their app stores has created an attractive entry position for investors. He added that Apple Inc.’s (NASDAQ:AAPL) current stock price does not reflect the impact of new launches. However, this will change following the launch of virtual reality (VR) headsets next year and foldable devices in 2024. The analyst has assigned Apple Inc. (NASDAQ:AAPL) stock a target price of $175 along with a Buy rating.

Here’s what TimesSquare Capital Management said about Apple Inc. (NASDAQ:AAPL) in its Q3 2022 investor letter:

“Apple Inc. (NASDAQ:AAPL) designs and manufactures smartphones, personal computers, tablets, and wearable devices. The company reported better than expected revenues, though that came from a lower-than-expected supply chain impact. Apple called out pockets of weakness in wearables as well as home & accessories. Management referenced macroeconomic uncertainty and sounded somewhat guarded when commenting on fourth quarter expectations. In September, Apple introduced four new iPhones with retail prices kept at last year’s levels. Its shares edged forward by 1% in consideration of these developments. We trimmed the position after evaluating the channel which highlighted some consumer demand choppiness.”

4. Meta Platforms, Inc. (NASDAQ:META)

Number of Hedge Fund Holders: 177

Latest Cash and Short-Term Investments: $41.78 billion

Meta Platforms, Inc. (NASDAQ:META) is a Menlo Park, California-based technology conglomerate that provides social media and instant messaging solutions through Facebook, Instagram, and WhatsApp. The company is preparing for the next revolution by investing heavily in augmented reality and the metaverse.

Meta Platforms, Inc. (NASDAQ:META) has significantly expanded its operations by acquiring Instagram for $1 billion in 2012, followed by WhatsApp in 2014 for $16 billion. The stock price of the tech giant has observed a decline of nearly 65% since the start of 2022; Doug Anmuth at JPMorgan thinks this is an attractive entry point for investors. The analyst believes that many pressures on Meta Platforms, Inc. (NASDAQ:META) would subside in 2023, and the company has also revealed positive signs of controlling its overheads. On December 16, Anmuth upgraded Meta Platforms, Inc. (NASDAQ:META) stock from a Neutral to an Overweight rating and assigned a target price of $150.

Here’s what ClearBridge Investments said about Meta Platforms, Inc. (NASDAQ:META) in its Q3 2022 investor letter:

“We initiated a new position in Meta Platforms, Inc. (NASDAQ:META), in the communication services sector, which operates the Facebook and Instagram social media platforms and is a leading digital advertising provider. We have been carefully watching the company over the last few quarters and believe headwinds from lower monetizing in Facebook and Instagram Reels and pressures from consumer privacy measures are poised to lessen. We believe the company has begun to fully acclimate to this new environment, will achieve greater effectiveness in Reels monetization and find ways to adapt to new privacy standards which will rebound advertising efficiency. Combined with a greater focus on cost control, we believe these initiatives will help contribute to further margin expansion and leave the company well-positioned moving forward.”

3. Alphabet Inc. (NASDAQ:GOOGL)

Number of Hedge Fund Holders: 196

Latest Cash and Short-Term Investments: $116.26 billion

Alphabet Inc. (NASDAQ:GOOGL) is a Mountain View, California-based technology conglomerate with platforms like Google, YouTube, Calico, and Waymo in its portfolio.

On December 22, the company entered into a partnership with the National Football League (NFL) that would allow YouTube TV to provide NFL Sunday Ticket Subscriptions. Following this development, Ronald Josey at Citi highlighted that this would accelerate the subscription growth of the video platform. He drew a comparison to Amazon’s deal with the NFL to broadcast the inaugural season of Thursday Night Football on the Amazon Prime platform. Mr. Josey concluded that this will aid the top-line growth of Alphabet Inc. (NASDAQ:GOOGL) and will contribute positively to the bottom-line margins in the long term. On December 23, the analyst assigned Alphabet Inc. (NASDAQ:GOOGL) stock a target price of $120 along with an Overweight rating.

Renaissance Investment Management shared its outlook on Alphabet Inc. (NASDAQ:GOOGL) in its Q3 2022 investor letter. Here’s what the firm said:

“Lastly, Alphabet Inc. (NASDAQ:GOOGL) declined after reporting third quarter results that were better than feared, driven by upside in the company’s search segment and despite tough comparisons. The stock’s weakness was concentrated in the last month of the quarter after the Fed “non-pivot” caused a sell-off in high-multiple growth stocks.”

2. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 269

Latest Cash and Short-Term Investments: $58.66 billion

Amazon.com, Inc. (NASDAQ:AMZN) is a Seattle, Washington-based diversified technology led by its e-commerce and cloud computing services business.

Following a 20-1 stock split in March 2022, Amazon.com, Inc. (NASDAQ:AMZN) also initiated a $10 billion share buyback plan to boost shareholder returns. Over the years, the company has efficiently used its cash reserves to expand its operations. In 2017, Amazon.com, Inc. (NASDAQ:AMZN) used $13 billion to increase its footprint in the grocery business through the acquisition of Whole Foods. In March 2022, the company also completed the $8.5 billion takeover of MGM Studios.

On December 16, Doug Anmuth at JPMorgan gave Amazon.com, Inc. (NASDAQ:AMZN) stock a target price of $130 along with an Overweight rating. The analyst believes that a “significant secular shift” toward e-commerce and cloud businesses is expected to take place. Furthermore, Amazon.com, Inc. (NASDAQ:AMZN) should benefit from easier retail comparables in 2023.

Here’s what Farnam Street Investments said about Amazon.com, Inc. (NASDAQ:AMZN) in its Q3 2022 investor letter:

“Change doesn’t just impact investors. Business people also bet for or against change. Jeff Bezos was once asked this exact question:

“You can build a business strategy around the things that are stable in time. It’s impossible to imagine a future ten years from now where a customer comes up and says, ‘Jeff, I love Amazon, I just wish the prices were a little higher.’ Or, ‘I love Amazon, I just wish you’d deliver a little slower.’ Impossible. So we know the energy we put into these things today will still be paying off dividends ten years from now. When you have something you know is true, you can afford to put a lot of energy into it.”

A lot of energy… and more than $172 billion in capital expenditure in the last fifteen years.

Deeper, slower moving layers turn exponential growth into “S-curves.” A rapidly dividing bacteria crashes into the resource-wall of its Petri dish. Nineteenth-century commercial robber barons were smacked by the governance layer of the Sherman Antitrust act. Amazon (NASDAQ:AMZN) Prime free shipping leaned on the creaking infrastructure of the U.S. Postal Service until it was forced to invest in its own infrastructure (all those delivery vans you see driving around).

Hopefully, next time you’re thinking about change, you can recall pace layers as a helpful construct to understand how successful systems change.

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 269

Latest Cash and Short-Term Investments: $107.24 billion

Microsoft Corporation (NASDAQ:MSFT) is a Redmond, Washington-based technology conglomerate that manufactures personal computers, gaming consoles, and software.

Microsoft Corporation (NASDAQ:MSFT) is currently in the process of acquiring the Santa Monica, California-based video game developer Activision Blizzard, Inc. (NASDAQ:ATVI) for $68.7 billion. The deal is currently in the middle of a regulatory review. Furthermore, Microsoft Corporation (NASDAQ:MSFT) is also executing a $60 billion share buyback plan that was announced in September 2021. The company pays out more than $20 billion annually as dividends.

Microsoft Corporation (NASDAQ:MSFT) is the exclusive technology and sales partner of Netflix’s advertisement-based streaming model. There is a widespread belief that the company will be able to grow at a faster-than-expected growth rate under these uncertain economic circumstances through the enterprise side of the business.

TimesSquare Capital Management shared its outlook on Microsoft Corporation (NASDAQ:MSFT) in its Q3 2022 investor letter. Here’s what the firm said:

“Microsoft Corporation (NASDAQ:MSFT) develops, licenses, and supports software solutions worldwide. Fiscal fourth quarter results were generally in line with consensus estimates, though profits missed slightly. While its Azure cloud business continues to perform well, the personal computer market has declined with inflation having an impact. Its shares experienced a -9% selloff.”

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Disclosure: None. 10 Cash-Rich Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.