In this article, we will look at the 10 cash-rich tech stocks to buy now.
Tech stocks are taking a beating in 2022. The tech-heavy Nasdaq Composite index has lost more than 25% year to date, as of September 7. As the Fed continues its aggressive rate hikes to tamp down inflation, recession fears are driving tech stocks to the bottom. On July 27, the Fed hiked interest rates by 75 basis points, the second consecutive 0.75% rate hike this year, and brought its benchmark target rate to a range between 2.25% and 2.5%. The Fed’s next meeting is scheduled for September 21, and according to Forbes, if the job market remains strong and inflation points to 9% and above, chances of another 75 basis point rate hike are more probable.
Tech companies are slashing their forecasts for the second half of 2022 and tech stocks are facing price target cuts and material downgrades. The overall outlook on the sector is becoming bearish, causing the share prices of big tech companies to fall to new lows. However, as in every industry, there are certain companies in the tech sector that have enough cash to keep their businesses afloat even if we head into a recession. The head of internet research at Evercore ISI, Mark Mahaney, appeared on CNBC’s ‘Closing Bell’ where he discussed some cash-rich companies that can sustain their performance in the current interest rate environment. Here are some comments from expert analyst, Mark Mahaney:
“We’ve had a massive derating since the beginning of the year, because we had a massive rerating last year. We had multiples well above their average bands and we took all of that out through June. Then we went into estimates risks, estimates cuts and I’ve had three quarters in a row where 70% of the companies that I cover, the December, March, and June quarters, have had negative estimates revisions and relatively material ones. I haven’t seen that level of negative revisions in multiple years. I hope that the numbers or estimates are down enough to accommodate the softening recessionary conditions that we’re obviously going into. We don’t know that, but I hope the numbers have been cut enough. A lot of the valuation risk has been taken out. Your prior guest talked about hard money and easy money, that’s how I now think about stock picks. If you tell me we’ve got a ‘hard money’ environment for the foreseeable future, a sustainably high inflation rate and sustainably high interest rates, it’s a different list of stocks you want to be looking at than if you’ve got an ‘easy money’ outlook…
It’s companies that you can look at and say free cash flow, where these companies are trading at 12, 13, 14 times GAAP earnings. We’re not doing EBITDA, or doing adjusted earnings… In the space that I look at, Google (NASDAQ:GOOGL) would be one, Meta/Facebook (NASDAQ:META) would be another, Booking (NASDAQ:BKNG) would be another, eBay (NASDAQ:EBAY) could be a name in there, and then if I wanna get a little bit creative then I actually think a name like Uber (NASDAQ:UBER) could work into that because I think you’re gonna see a real dramatic increase in free cash flow there. I’d throw all of those in my ‘hard money’ basket, names that can outperform but they gotta have free cash flow support. They can’t be long-duration assets, they have got to have real profits in ’22-’23, not ’24-’25, long duration assets won’t work in a ‘hard money’ environment…”
Some of the top cash-rich tech companies that can manage to drive outperformance in the current interest rate environment include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT). In this article, we have discussed these companies among others.
Our Methodology
We looked at the trailing twelve-month free cash flows of companies operating in the technology sector. We narrowed down our selection to stocks that had strong free cash flows, pricing power, and growth catalysts to drive further cash flow in the foreseeable future. Along with each stock, we have mentioned the analyst rating and top shareholder for it. We ranked our picks according to free cash flow, from least to most.
10 Cash-Rich Tech Stocks to Buy Now
10. Uber Technologies, Inc. (NYSE:UBER)
Free Cash Flow: $672 Million
Number of Hedge Fund Holders: 129
On August 23, Wolfe Research analyst Deepak Mathivanan reiterated an Outperform rating and his $37 price target on Uber Technologies, Inc. (NYSE:UBER). The analyst noted that the stock has strong prospects to drive profitability and free cash flow in the back half of 2022 and into 2022, and named it as one of his ‘top ideas’ in the mobility space. Mathivanan further stated that Uber Technologies, Inc. (NASDAQ:UBER) is attractively valued at current levels and that he sees the company growing its sales and margins by 20% over the next 3 to 5 years.
On August 15, Uber Technologies, Inc. (NYSE:UBER) announced a collaboration with The ODP Corporation (NASDAQ:ODP) by which the two companies plan to deliver business, office, and school essentials to consumers via Uber Eats.
At the close of Q2 2022, 129 hedge funds held stakes in Uber Technologies, Inc. (NASDAQ:UBER) worth $5.26 billion. Of those, Fisher Asset Management was the top shareholder with a stake worth $500.8 million in the company. The investment covers 0.35% of Ken Fisher’s 13F portfolio.
As of September 7, Uber Technologies, Inc. (NASDAQ:UBER) has free cash flows of $672 million and is therefore a cash-rich tech stock that should be on investors’ watchlist. Other cash-rich tech stocks for growth investors include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT).
9. eBay Inc. (NASDAQ:EBAY)
Free Cash Flow: $933 Million
Number of Hedge Fund Holders: 43
On August 3, eBay Inc. (NASDAQ:EBAY) announced strong earnings for the fiscal second quarter of 2022. The company reported earnings per share of $0.99 and outperformed expectations by $0.10. The company’s revenue for the quarter amounted to $2.42 billion and beat Wall Street estimates by $59.71 million.
On August 4, Barclays analyst Ross Sandler revised his price target on eBay Inc. (NASDAQ:EBAY) to $59 from $60 and maintained an Overweight rating on the shares. The analyst is bullish on the stock due to eBay’s (NASDAQ:EBAY) strong presence in German and UK markets. He sees the stock offering good value in the consumer internet space.
As of September 7, eBay Inc. (NASDAQ:EBAY) is trading at a trailing twelve-month PE ratio of 2.37 and is offering a forward dividend yield of 1.97%, which the company backs with free cash flows of $933 million.
At the end of Q2 2022, 43 hedge funds were bullish on eBay Inc. (NASDAQ:EBAY) and held stakes worth $1.31 billion in the company. As of June 30, Harris Associates owns more than 4.8 million shares of eBay Inc. (NASDAQ:EBAY) and is the largest shareholder in the company.
Investment management firm, Smead Capital Management, mentioned eBay Inc. (NASDAQ:EBAY) in its recently released second-quarter 2022 investor letter. Here is what the firm had to say:
“We believe you need to avoid these formerly glamorous stock groups for many years. We loved to use eBay Inc. (NASDAQ:EBAY) as a poster child back in 1999 for the dotcom bubble. We bought it eight years later and have done very well on it. We wouldn’t have done well if we bought it in the early years of that bear market, or even five years later. If you think this bear will be shorter and or less damaging than the dotcom bear market of 2000-2003, you could be showing your inexperience!.”
8. Oracle Corporation (NYSE:ORCL)
Free Cash Flow: $5.02 Billion
Number of Hedge Fund Holders: 69
Oracle Corporation (NYSE:ORCL) is a leading global developer of enterprise software solutions. At the close of Q2 2022, 69 hedge funds held stakes in Oracle Corporation (NYSE:ORCL) worth $4.18 billion. This is compared to 61 positions in the previous quarter with stakes worth $4.33 billion.
Oracle Corporation (NYSE:ORCL) is a dividend-paying and cash-rich tech stock that should be on investors’ radars. As of September 7, Oracle Corporation (NYSE:ORCL) is offering a forward dividend yield of 1.70% and has trailing twelve-month free cash flows of $5 billion.
On June 30, Oracle Corporation (NYSE:ORCL) launched the first Oracle Cloud Infrastructure region in Mexico. The company is the first cloud services and infrastructure provider in Mexico.
On August 11, Guggenheim analyst John DiFucci initiated coverage of Oracle Corporation (NYSE:ORCL) with a Buy rating and a $107 price target. The analyst noted that the company had a strong fiscal 2022, driven by accelerated cloud revenue and database performance. DiFucci expects Oracle Corporation (NYSE:ORCL) to continue on this growth trajectory and maintain high single-digit revenue growth and double-digit profit growth.
As of June 30, First Eagle Investment Management owns roughly 26 million shares of Oracle Corporation (NYSE:ORCL) and is the top shareholder in the company. The investment covers 5.1% of the fund’s 13F portfolio.
Here is what First Eagle Investments had to say about Oracle Corporation (NYSE:ORCL) in its second-quarter 2022 investor letter:
“Oracle is one of the world’s largest independent enterprise software companies and has been reinventing itself for the cloud-computing environment, a transition pursued primarily through investments in organic research and design and smallish, well-priced acquisitions. That said, Oracle in June closed its largest-ever deal with the acquisition of Cerner, a designer of software to store and analyze medical records and other healthcare data.
Oracle took on additional debt to finance this all-cash acquisition and as a result plans to moderate its stock-buyback program to focus on debt reduction. Despite the weak quarter for the stock, Oracle’s operations remain strong; it reported better- than-expected results for its most recent quarter and issued upbeat guidance for the coming fiscal year.”
7. Booking Holdings Inc. (NASDAQ:BKNG)
Free Cash Flow: $5.87 Billion
Number of Hedge Fund Holders: 93
Booking Holdings Inc. (NASDAQ:BKNG) provides online reservation services for the travel and restaurant industries worldwide. As of June 30, Harris Associates is the leading shareholder in Booking Holdings Inc. (NASDAQ:BKNG) and has a stake worth $1.07 billion in the company.
On August 3, Booking Holdings Inc. (NASDAQ:BKNG) announced earnings for the second quarter of fiscal 2022. The company reported earnings per share of $19.08 and beat estimates by $1.41. The company generated a revenue of $4.29 billion, up 98.80% year over year. As of September 7, Booking Holdings Inc. (NASDAQ:BKNG) has free cash flows of $5.87 billion and a trailing twelve-month operating margin of 27.87%, making it one of the cash-rich tech stocks with the highest margins.
On August 4, Deutsche Bank analyst Lee Horowitz revised his price target on Booking Holdings Inc. (NASDAQ:BKNG) to $2,280 from $2,300 and maintained a Buy rating on the shares.
On August 29, Robert Mylod, Jr., chairman of Booking Holdings Inc. (NASDAQ:BKNG), disclosed purchasing 500 shares of the company’s common stock at roughly $1,912 per share.
At the close of Q2 2022, 93 hedge funds were long Booking Holdings Inc. (NASDAQ:BKNG) and held stakes worth $5.45 billion in the company.
6. Broadcom Inc. (NASDAQ:AVGO)
Free Cash Flow: $15.30 Billion
Number of Hedge Fund Holders: 66
Broadcom Inc. (NASDAQ:AVGO) is a leading semiconductor chipmaker, and also one of the biggest suppliers of Apple Inc. (NASDAQ:AAPL). On September 2, Mizuho analyst Vijay Rakesh reiterated his $725 price target and Buy rating on Broadcom Inc. (NASDAQ:AVGO). The analyst noted that the company is experiencing strong demand from the data center market and has healthy order backlogs.
Broadcom Inc. (NASDAQ:AVGO) is on investors’ radars as the company has solid free cash flows, offers a strong dividend, and has high profitability. As of September 7, Broadcom Inc. (NASDAQ:AVGO) has a trailing twelve-month operating margin of 40.69% and is offering a forward dividend yield of 3.33%, which the company supports with free cash flows of $15.30 billion.
At the end of the second quarter of 2022, 66 hedge funds were eager on Broadcom Inc. (NASDAQ:AVGO) and held stakes worth $4.03 billion in the company. Of those, Fisher Asset Management was the dominating shareholder with stakes worth $716 million in the company.
In addition to Broadcom Inc. (NASDAQ:AVGO), other big tech companies that have robust free cash flows include Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOGL), and Microsoft Corporation (NASDAQ:MSFT).
5. JD.com, Inc. (NASDAQ:JD)
Free Cash Flow: $28.82 Billion
Number of Hedge Fund Holders: 62
On August 23, JD.com, Inc. (NASDAQ:JD) announced earnings for the fiscal second quarter of 2022. The company reported earnings per share of $0.59 and outperformed estimates by $0.19. The company generated a revenue of $39.15 billion and beat Wall Street expectations by $571.5 million.
On August 24, Benchmark analyst Fawne Jiang raised his price target on JD.com, Inc. (NASDAQ:JD) to $109 from $106 and reiterated a Buy rating on the shares. Jiang sees JD.com, Inc. (NASDAQ:JD) driving margin expansion better than peers.
As of September 7, JD.com, Inc. (NASDAQ:JD) has free cash flows of $28.82 billion and is therefore ranked among the top 5 cash-rich tech stocks to buy now.
At the close of Q2 2022, 62 hedge funds held stakes in JD.com, Inc. (NASDAQ:JD) worth $5.48 billion. This is compared to 59 positions in Q1 2022, with stakes worth $5.40 billion. The hedge fund sentiment for the stock is positive.
As of June 30, Tiger Global Management LLC owns more than 30.5 million shares of JD.com, Inc. (NASDAQ:JD) and is the largest shareholder in the company.
4. Meta Platforms, Inc. (NASDAQ:META)
Free Cash Flow: $35.83 Billion
Number of Hedge Fund Holders: 184
Meta Platforms, Inc. (NASDAQ:META) is cash-rich enough to weather an economic downturn and is also trading at bargain levels right now. As of September 7, Meta Platforms, Inc. (NASDAQ:META) has a trailing twelve-month PE ratio of 12.50 and has free cash flows of $35.83 billion.
Wall Street is bullish on Meta Platforms, Inc. (NASDAQ:META). On July 28, RBC Capital analyst Brad Erickson revised his price target on Meta Platforms, Inc. (NASDAQ:META) to $190 from $200 and reiterated a buy-side Outperform rating on the shares. On August 10, BofA added Meta Platforms, Inc. (NASDAQ:META) to its U.S. 1 list, which contains Buy-rated companies.
At the end of Q2 2022, 184 hedge funds were long Meta Platforms, Inc. (NASDAQ:META) and held stakes worth $18.19 billion in the company. Of those, Fisher Asset Management was the top shareholder with stakes worth $1.86 billion.
Here is what RGAIA Investment Advisors had to say about Meta Platforms, Inc. (NASDAQ:META) in its second-quarter 2022 investor letter:
“Consequently, many former growth darlings now qualify as “value” stocks to the point where the Russell 1000 Value Index even includes our growth holdings. A great example of this is one of our recent purchases: Meta Platforms (NASDAQ:META), the company formerly known as Facebook). As it stands today, META is the fifth largest holding of all in the Russell 1000 Value Index.
We followed Facebook for years and were often asked “why own Twitter when you can buy Facebook?” Sure enough, Twitter’s return was far better over our holding period and we now deployed a decent portion of our Twitter proceeds into META. META today strikes us as one of the cheapest stocks in the entire market and one of the more interesting setups we have seen. META was hit with a triple-whammy of tough COVID comps, changes in Apple’s privacy policies and emerging competition from TikTok.
Despite all this, the company continues to grow, albeit at slower rates. At its lows this year, META was trading for low teens forward P/E (15x 2022 numbers today) and this is despite investments in the Reality Labs division at around a $10b annualized rate. If we exclude the Reality Labs investments, the core META properties of Facebook, Instagram and WhatsApp would earn somewhere around 23% more in bottom line EPS. This would chop about 2.5 turns off the company’s P/E.
Speaking realistically, there is no sign Mark Zuckerberg would entirely stop these investments; however, we do think Zuckerberg is realistic about his stock price and very well might defer a large portion of the investment until core earnings reaccelerate. Further, we think it is appropriate to value the company on a sum of the parts basis and rather than fully expense the Reality Labs investments against the core properties, we should think about what the actual value of that investment might yield. Either way, even fully expensing Reality Labs, this company is far too cheap to ignore.”
3. Microsoft Corporation (NASDAQ:MSFT)
Free Cash Flow: $65.14 Billion
Number of Hedge Fund Holders: 258
At the end of Q2 2022, 258 hedge funds were long Microsoft Corporation (NASDAQ:MSFT) with stakes worth $56 billion. As of June 30, Fisher Asset Management is the most prominent shareholder in the software giant with stakes worth $7.3 billion. The investment covers 5.21% of Ken Fisher’s 13F portfolio.
Microsoft Corporation (NASDAQ:MSFT) is a dividend-paying tech company that has been growing its dividends for 17 years. As of September 7, Microsoft Corporation (NASDAQ:MSFT) is offering a forward dividend yield of 0.98%, which the company backs with free cash flows of $65 billion.
On August 11, Guggenheim analyst John DiFucci initiated coverage of Microsoft Corporation (NASDAQ:MSFT) with a $292 price target and a Neutral rating. DiFucci is bullish on the software giant’s ability to grow revenue and cash flows in the mid-teens percentage range, as the company’s industry-leading Azure and Office Commercial 365 experience strong demand.
Carillon Tower Advisers mentioned Microsoft Corporation (NASDAQ:MSFT) in its first-quarter 2022 investor letter. Here is what the firm had to say:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Microsoft Corporation (NASDAQ:MSFT) reported positive results driven by personal computing strength, but analysts were especially positive on its growth outlook for its Azure cloud-computing services.”
2. Alphabet Inc. (NASDAQ:GOOGL)
Free Cash Flow: $65.18 Billion
Number of Hedge Fund Holders: 191
Alphabet Inc. (NASDAQ:GOOGL) joins Microsoft Corporation (NASDAQ:MSFT) as one of the world’s largest cloud services providers. With accelerating cloud adoption, Alphabet Inc. (NASDAQ:GOOGL) will be able to generate robust free cash flows in the foreseeable future. As of September 7, Alphabet Inc. (NASDAQ:GOOGL) has free cash flows of $65.18 billion and is one of the top cash-rich stocks to buy now.
Wall Street sees material upside to Alphabet Inc. (NASDAQ:GOOG). On August 3, Tigress Financial analyst Ivan Feinseth raised his price target on Alphabet Inc. (NASDAQ:GOOG) to $186 from $183 and reiterated a Strong Buy rating on the shares. Feinseth is bullish on the company’s Cloud and Search business segments and its expansion and position in the artificial intelligence vertical.
At the end of the second quarter of 2022, 191 hedge funds were bullish on Alphabet Inc. (NASDAQ:GOOGL) and held stakes worth $22 billion. Of those, TCI Fund Management was the most prominent investor in the company, with stakes worth $5.4 billion.
Arch Capital named several companies, one of which was Alphabet Inc. (NASDAQ:GOOG), in its second-quarter 2022 investor letter. Here is what the firm had to say:
“In May we decided to buy Alphabet Inc. (NASDAQ:GOOG) (parent company of Google, YouTube, and Android). Our thesis was simple. Alphabet has billions of locked-in users around the globe with businesses like Search, Maps, and YouTube that should grow in-line or faster than worldwide GDP. With all the cash these businesses generate, management is able to reinvest in Google Cloud, Other Bets projects like Waymo, and return cash to shareholders via share repurchases. At an enterprise value-to-free cash flow (EV/FCF) of around 20 at the time of our purchase, we believe this sets up shareholders for low risk 15%+ returns over the next five years.”
1. Apple Inc. (NASDAQ:AAPL)
Free Cash Flow: $107.58 Billion
Number of Hedge Fund Holders: 128
On July 28, Apple Inc. (NASDAQ:AAPL) announced market-beating earnings for the fiscal third quarter of 2022. The company reported earnings per share of $1.20 and beat expectations by $0.04. The company’s revenue for the quarter amounted to roughly $83 billion. As of September 7, Apple Inc. (NASDAQ:AAPL) has trailing twelve-month free cash flows of $107.5 billion.
Wall Street is bullish on Apple Inc. (NASDAQ:AAPL). On August 29, Wedbush analyst Daniel Ives reiterated his $220 price target on and an Outperform rating on the stock. On September 6, Credit Suisse analyst Shannon Cross reiterated her buy-side Outperform rating and $201 price target on the stock.
At the end of the second quarter of 2022, 128 hedge funds disclosed ownership of stakes in Apple Inc. (NASDAQ:AAPL). The total value of these stakes amounted to $182 billion. As of June 30, Berkshire Hathaway owns more than 894.8 million shares of Apple Inc. (NASDAQ:AAPL) and is the most prominent shareholder in the company. The investment covers 40.76% of Warren Buffett’s 13F portfolio.
Wedgewood Partners mentioned Apple Inc. (NASDAQ:AAPL) in its second-quarter 2022 investor letter, Here is what the firm said:
“Apple Inc. (NASDAQ:AAPL) grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple Inc. (NASDAQ:AAPL) is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
You can also take a look at 10 Best Growth Stocks to Buy and Hold for Several Years and 10 Best Dividend Growth Stocks to Buy Now.
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Disclosure. None. 10 Cash-Rich Tech Stocks to Buy Now is originally published on Insider Monkey.
