In this article, we discuss 10 high free cash flow stocks to buy in 2022.
On July 27, the Federal Reserve in the United States raised the benchmark interest rate by 75 basis points, pushing it to a range of 2.25% to 2.50%, in an effort to curb growth and ease the pricing pressures on the market. The interest raise was the largest in close to three decades. Merely a day after this raise, the US Department of Commerce released GDP growth numbers for the second quarter of 2022, revealing that the US economy had shrunk for the second consecutive quarter, a technical indication that the US was now in a recession.
The markets have been pummeled as a result of recession fears over the past few months, with the S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average down 13.8%, 21.74%, and 10.22% year-to-date respectively. Even though tech stocks have generally been battered during this panic, firms with strong free cash flows like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), have all surprised analysts with their guidance numbers.
Free cash flows are an important metric that investors monitor closely when looking at the financials of a company during a crisis period. This is because free cash flows allow firms with the room to develop new products, make acquisitions, pay dividends, and reduce debt during a period of inflation. Firms with weak cash flows suffer during recession periods because as the values of goods rise, their operating margins decrease and sales also come under pressure because of weaker consumer spending.
Our Methodology
The companies that have high free cash flows were selected for the list. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Viacheslav Bublyk on Unsplash
High Free Cash Flow Stocks to Buy in 2022
10. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
Free Cash Flow TTM: $8 Billion
NVIDIA Corporation (NASDAQ:NVDA) operates as a visual computing firm. The stock has jumped over 25% in the past few weeks after the US Senate and the House passed the CHIPS Act, a legislation designed to provide governmental incentives to semiconductor firms in the US so that they can compete with Chinese manufacturing. The bill will provide $52 billion in subsidies for domestic production, around $24 billion in tax incentives, and $200 billion to boost scientific research in the chip industry over the next decade.
On July 25, Barclays analyst Blayne Curtis maintained an Overweight rating on NVIDIA Corporation (NASDAQ:NVDA) stock and lowered the price target to $200 from $295, noting that it was too early to buy the dip in semiconductor stocks.
At the end of the first quarter of 2022, 102 hedge funds in the database of Insider Monkey held stakes worth $6.3 billion in NVIDIA Corporation (NASDAQ:NVDA), compared to 110 the preceding quarter worth $10.4 billion.
Just like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), NVIDIA Corporation (NASDAQ:NVDA) is one of the stocks that elite investors are buying.
In its Q1 2022 investor letter, RiverPark Funds, an asset management firm, highlighted a few stocks and NVIDIA Corporation (NASDAQ:NVDA) was one of them. Here is what the fund said:
“NVIDIA Corporation (NASDAQ:NVDA) is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVIDIA Corporation (NASDAQ:NVDA) chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
9. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 74
Free Cash Flow TTM: $15 Billion
AT&T Inc. (NYSE:T) is a media, communications, and technology firm. On July 21, the company posted earnings for the second quarter of 2022, reporting earnings per share of $0.65, beating analyst expectations by $0.03. The revenue over the period was $29.6 billion, down over 17% compared to the revenue over the same period last year but beating market estimates by $130 million. The company also said it was decreasing full-year free cash flow guidance to around $14 billion to reflect heavy investment in growth and working capital impacts.
On July 22, Morgan Stanley analyst Simon Flannery maintained an Overweight rating on AT&T Inc. (NYSE:T) stock with a price target of $22, noting that the selloff in the stock due to downward cash flow guidance was an overreaction from investors.
At the end of the first quarter of 2022, 74 hedge funds in the database of Insider Monkey held stakes worth $4 billion in AT&T Inc. (NYSE:T), compared to 70 in the preceding quarter worth $4.9 billion.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T Inc. (NYSE:T) to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
8. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Free Cash Flow TTM: $16 Billion
Vale S.A. (NYSE:VALE) markets iron ore products. The firm posted earnings for the second quarter of 2022 on July 29, reporting earnings per share of $1.32, beating market estimates by $0.52. The revenue over the period was $11.6 billion, down more than 33% compared to the revenue over the same period last year and missing analyst expectations by $450 million. The board of directors for the firm also approved almost $3 billion in dividends and interest on capital to be paid in the month September.
On June 22, Morgan Stanley analyst Carlos De Alba maintained an Equal Weight rating on Vale S.A. (NYSE:VALE) stock and lowered the price target to $16 from $22, noting that decreasing iron ore prices would weigh on the shares of the firm in the near term.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Vale S.A. (NYSE:VALE), with 28 million shares worth more than $573 million.
7. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
Free Cash Flow TTM: $23 Billion
Berkshire Hathaway Inc. (NYSE:BRK-B) is a diversified holding company with interests in finance, transport, and utility businesses. The firm is famous for the intelligent deployment of cash during crunch times, a strategy that has contributed to the handsome long-term returns of the company in the past five decades. Recently, Warren Buffett, the chief of the firm, has been buying up shares in energy firm Occidental Petroleum. In mid-July, Berkshire moved closer to a 20% stake in the energy firm after buying around 2 million additional shares.
Berkshire Hathaway Inc. (NYSE:BRK-B) is one of the few stocks that have outperformed the benchmark S&P 500 during periods of recession. The firm achieves this through deal-making during crisis times, using the cash pile it is sitting on to make purchases.
At the end of the first quarter of 2022, 104 hedge funds in the database of Insider Monkey held stakes worth $19 billion in Berkshire Hathaway Inc. (NYSE:BRK-B), compared to 108 in the preceding quarter worth $19.3 billion.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Berkshire Hathaway Inc. (NYSE:BRK-B) was one of them. Here is what the fund said:
“Diversified holding company Berkshire Hathaway Inc. (NYSE:BRK-B) reported strong earnings during the quarter and benefited from continued share repurchases below intrinsic value. The company also announced significant deployments of excess cash during the quarter, including the acquisition of Alleghany and a large increase in its stake in Occidental Petroleum.”
6. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 79
Free Cash Flow TTM: $31 Billion
Pfizer Inc. (NYSE:PFE) makes and sells biopharma products. The company recently beat market estimates on earnings per share and revenue for the second quarter of 2022 by $0.26 and $1.5 billion, respectively. The firm also maintained guidance for COVID-19, saying it expected Comirnaty, the vaccine, and Paxlovid, a COVID-19 pill, to generate nearly $32 billion and $22 billion in revenues in 2022. The stock has also risen on the back of news that lawmakers might approve another $21 billion in funding for new variants of the virus.
On July 8, Morgan Stanley analyst Terence Flynn maintained an Equal Weight rating on Pfizer Inc. (NYSE:PFE) stock and lowered the price target to $49 from $52, backing biopharma revenues to remain resilient in the face of a slowing economy.
At the end of the first quarter of 2022, 79 hedge funds in the database of Insider Monkey held stakes worth $4 billion in Pfizer Inc. (NYSE:PFE), compared to 83 in the preceding quarter worth $5 billion.
Along with Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Alphabet Inc. (NASDAQ:GOOG), Pfizer Inc. (NYSE:PFE) is one of the stocks that hedge funds are monitoring.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Pfizer Inc. (NYSE:PFE) was one of them. Here is what the fund said:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizeable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer Inc. (NYSE:PFE) had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.”
5. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 31
Free Cash Flow TTM: $60 Billion
Novo Nordisk A/S (NYSE:NVO) is a Denmark-based healthcare firm. On July 11, the company announced that it had achieved positive results in two studies related to drug candidates for the treatment of haemophilia. One was a Phase 3 study on concizumab and the other a trial for Factor Villa. The company said it was planning to launch regulatory filings for the former in the US and Japan as early as the second half of 2022. In Europe, the required paperwork would be submitted by 2023.
On July 15, Morgan Stanley analyst Mark Purcell upgraded Novo Nordisk A/S (NYSE:NVO) stock to Overweight from Equal Weight and raised the price target to DKK 915 from DKK 805, forecasting that the firm had a $11 billion sales opportunity with a weight management drug.
At the end of the first quarter of 2022, 31 hedge funds in the database of Insider Monkey held stakes worth $4.49 billion in Novo Nordisk A/S (NYSE:NVO), up from 28 in the previous quarter worth $4.43 billion.
In its Q1 2022 investor letter, Baron Funds highlighted a few stocks and Novo Nordisk A/S (NYSE:NVO) was one of them. Here is what the fund said:
“We initiated a position in Novo Nordisk A/S (NYSE:NVO), a leading global biopharmaceutical company headquartered in Denmark that specializes in treatments for diabetes, obesity, and other chronic diseases. Novo Nordisk and Eli Lilly, another holding in the Fund, are leaders in the GLP-1 (glucagon-like peptide 1 agonists) class of diabetes treatments, a $15 billion market that is growing rapidly but still has just 3% penetration of diabetes prescriptions globally. Diabetes drugs in the GLP-1 class include Trulicity (Eli Lilly), Ozempic (Novo Nordisk), and Rybelsus (Novo Nordisk). These drugs stimulate insulin secretion and inhibit glucagon secretion, which helps lower blood sugar levels. GLP-1s also slow stomach emptying and increase how full you feel after eating, which reduces appetite and can lead to weight loss. We believe Novo Nordisk’s diabetes franchise will continue to generate solid growth driven by Ozempic and Rybelsus. We are particularly excited about the growth prospects for Novo Nordisk’s anti-obesity franchise, which is just getting started with the launch of Wegovy. In a 68-week clinical study of adults living with obesity or excess weight with a medical problem, adults taking Wegovy lost on average 35 pounds or roughly 15% body weight. There are over 650 million people living with obesity globally and only 2% are treated with an anti-obesity medication. Even with more conservative assumptions about the addressable patient population, we think Novo Nordisk’s obesity franchise can exceed $10 billion in sales over time. Novo Nordisk launched Wegovy in June 2021 but faced supply constraints due to overwhelming demand and manufacturing constraints at a contract manufacturer. Management has indicated supply issues will ease in the second half of 2022. Novo Nordisk’s pipeline includes new diabetes and anti-obesity medications that improve upon its existing portfolio. We think Novo Nordisk A/S (NYSE:NVO) can generate double-digit revenue and earnings growth for many years.”
4. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 100
Free Cash Flow TTM: $89 Billion
Alibaba Group Holding Limited (NYSE:BABA) is a diversified technology company. The stock has slid in the past few days after the Securities and Exchange Commission in the United States added it to the list of companies that could possibly face delisting in the United States. The move is part of a broader move by US regulators that have asked Chinese firms to allow independent auditors to review the financials of Chinese companies trading in the US. There are also reports that Jack Ma, the founder of the firm, will cede control over the company.
On July 19, Bernstein analyst Robin Zhu upgraded Alibaba Group Holding Limited (NYSE:BABA) stock to Outperform from Market Perform and raised the price target to $130 from $115, predicting that the incremental gross merchandise value share of the firm will improve in the coming quarters.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Alibaba Group Holding Limited (NYSE:BABA), with 14.4 million shares worth more than $1.5 billion.
In its Q1 2022 investor letter, Longleaf Partners Fund, an asset management firm, highlighted a few stocks and Alibaba Group Holding Limited (NYSE:BABA) was one of them. Here is what the fund said:
“We took advantage of price volatility to add to three of our most heavily discounted European businesses, including new purchases in 4Q 2021 and we reinitiated a position in Alibaba Group Holding Limited (NYSE:BABA), as the shares became even more heavily discounted amid broad China volatility in the period.”
3. Alphabet Inc. (NASDAQ:GOOG)
Number of Hedge Fund Holders: 160
Free Cash Flow TTM: $65 Billion
Alphabet Inc. (NASDAQ:GOOG) is a diversified technology company. The company has delayed the plans to end the use of third-party cookies in the Google Chrome browser to 2023, according to recent reports. This has given a small boost to internet advertising stocks. Per the reports, the company plans to give internet ad tech firms more time to test a cookie-less approach. Google has already said it will be testing this approach through an initiative dubbed the Privacy Sandbox.
On July 27, Evercore ISI analyst Mark Mahaney maintained an Outperform rating on Alphabet Inc. (NASDAQ:GOOG) stock and lowered the price target to $140 from $155.50, appreciating the surprisingly solid second quarter earnings report of the firm.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. (NASDAQ:GOOG), with 2.3 million shares worth more than $6.6 billion.
In its Q2 2022 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. (NASDAQ:GOOG) was one of them. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOG) grew its core search revenues +24% on a +30% year-ago comparison. Despite this stellar top-line performance, shares sold off as the market began to discount fears of a recession. However, the stock has outperformed relative to other holdings as core Google Search has been less affected by disruptions related to Apple’s privacy initiatives. Alphabet’s Cloud segment is generating revenue at a $24 billion run rate but is still running at a loss. We think this business can generate much better margins at some point. In the meantime, the Company has 4% to 5% of shares authorized for repurchase which is an attractive use of capital as the stock trades for about just 18X 2023 consensus estimates.”
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Free Cash Flow TTM: $65 Billion
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based technology firm. The company has stepped up the pursuit of Amazon in the cloud sector by asking prominent tech giants in the sector, like Google and Oracle, for help to speak to the US government in this regard. Amazon controls nearly 33% of the high-growth cloud infrastructure space in the US. The company has also reached out to firms like VMware, Dell Technologies, IBM, and Hewlett Packard Enterprise with a set of talking points for the meeting.
On July 27, Wedbush analyst Daniel Ives maintained an Outperform rating on Microsoft Corporation (NASDAQ:MSFT) stock and lowered the price target to $320 from $340, noting that the underlying metrics around cloud and commercial bookings were strong for the firm.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation (NASDAQ:MSFT), with 27.8 million shares worth more than $8.5 billion.
In its Q1 2022 investor letter, Carillon Tower Advisers, an investment management firm, highlighted a few stocks and Microsoft Corporation (NASDAQ:MSFT) was one of them. Here is what the fund said:
“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.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Free Cash Flow TTM: $106 Billion
Apple Inc. (NASDAQ:AAPL) is a diversified technology company. On July 28, the company posted earnings for the third fiscal quarter, reporting earnings per share of $1.20, beating market estimates by $0.05. The revenue over the period was $82.9 billion, up close to 2% compared to the revenue over the same period last year. The product revenue was $63.36 billion, compared to $63.95 billion in the third quarter of 2021. The iPhone revenue was $40.67 billion, up from $39.57 billion in the third quarter of 2021.
On July 29, Evercore ISI analyst Amit Daryanani maintained an Outperform rating on Apple Inc. (NASDAQ:AAPL) stock and raised the price target to $185 from $180, noting that the firm was uniquely positioned to sustain sales and EPS growth beyond the 2023 fiscal year.
At the end of the first quarter of 2022, 131 hedge funds in the database of Insider Monkey held stakes worth $182 billion in Apple Inc. (NASDAQ:AAPL), compared to 134 in the preceding quarter worth $186 billion.
In its Q2 2022 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Apple Inc. (NASDAQ:AAPL) was one of them. Here is what the fund 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.”
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Disclosure. None. 10 High Free Cash Flow Stocks to Buy in 2022 is originally published on Insider Monkey.
