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This story originally appeared on MarketBeat
All manner of organizational changes have been wrought by the pandemic. The shift to ecommerce is affecting business models and the expenses for travel and marketing will be reexamined.
A major trend is also the increase in cash stocks that companies have. Although economic conditions are improving dramatically, many businesses keep their cash reserves well stocked due to the uncertainty surrounding the spread of the delta variant.
S&P500 firms now have more than $2 trillion of cash, whether they are using equity or debt financing. How can investors make the most of this extraordinary situation?
Stocks are bought for income generation and capital appreciation. Investors want cash to be used for acquisitions, organic growth, dividends and buybacks. A good strategy for investing is to find companies with high cash balances that also have growth potential. This could help you to get some great returns when cash goes to work.
Let’s take a look at three companies with cash that can be worth the investment of our money.
Carrier Global: How does it use its cash?
Carrier Global (NYSE: CARR)It is most well-known as the brand name of your air conditioner unit. However, it also offers a variety of products and services in HVAC, refrigeration and fire protection. The strong residential and commercial construction industry is bringing positive changes to the sector.
Carrier’s cash position has also increased to $2.6 million. Last quarter management struck an upbeat tone about the company’s growth outlook, increased the quarterly dividend by 50%, and announced a new stock buyback program. These moves are a sign that management values shareholders and should be taken as a comfort. It is reasonable to assume that more shareholder-friendly moves will be made, even though Carrier’s remaining $9.7billion debt load must be paid.
Carrier has the financial flexibility to pursue value-added takeovers. The HVAC industry is fragmented and there are many attractive companies. Carrier Global shares should rise due to the M&A opportunity, growing dividends, buyback programs, and reasonable valuation.
CarMax Stock: Is it a good buy?
Auto dealer for used carsCarMax (NYSE: KMX)In its latest fiscal year, it earned $19 billion. Many Americans have abandoned air, subway, and bus travel to drive, so much money is flowing to dealers of pre-owned vehicles. Both online and physical stores are available.CarMax is now a monster of two-headed growth.
CarMax has $378 million in cash, which is lower than the amount it held a year earlier but still quite a lot for a company this size. Although $16.7 billion in debt seems daunting, it’s manageable because 85% is nonrecourse notes which don’t allow debtholders access to CarMax assets.
Management was able to rely on the strong capital structure and buoyant car-buying environment for stock buybacks. The program has a staggering $1.2 billion remaining, which will ensure that any drops in share prices are supported by company purchases.
CarMax does not pay dividends, and this is for good reasons. The company is in its early stages of long-term growth, as consumers continue to shift to digital platforms for car purchasing. The company’s investments in technology are aligned to these emerging trends.
CarMax has added 10-20 stores over the past few years to its nationwide footprint. This trend is expected to continue, given strong cash flows and the direction of the industry. A dip in CarMax’s share prices should not be considered a negative. Instead, it is a chance to invest in a growing company that has plenty of money left.
What amount of cash does Skechers have?
Only a few mid-caps can afford to be as financially sound as this.Skechers U.S.A (NYSE: SKX). TheEmerging sneaker brandWith strong retail and wholesale businesses, Skechers is thriving. Skechers has enjoyed strong global sales throughout this pandemic, as more people trade work shoes in exchange for casual shoes.
Skechers holds more than $1.1billion in cash, which is almost 15% of the company’s market capital. Skechers’ debt load is low and its inventory levels are manageable. What is Skechers doing with all of this green?
It plans to reduce its debt, which will help it to improve its financial situation. Given the current growth pace of Skechers, it is not likely that a dividend payment will be initiated. Skechers is likely to continue capitalizing on the consumer spending climate by continuing its investments in its digital platform and building its brick-and mortar presence.
The story will continue to focus on international growth. International growth will be achieved by securing international distribution agreements, and opening up new overseas locations. The success of the retailer in developing markets such as China and India may be a major milestone. Skechers will be up against fierce competition, especially Nike. However, Skechers balance sheet strength means it is a good fit for long-term growth investors.
Publiated at Thu, 02/09/2021 11:13:45 +0000