Analyst Watch: Cash In on Cash-Rich Companies?
Stock index futures were lower ahead of the open Wednesday, after modest gains in the previous session, as investors remained concerned over the US economy.
The market broke a losing streak Tuesday that saw the averages drop for seven straight sessions.
But disappointing data from the U.S. services sector Tuesday helped to underscore fears over the strength of the economic recovery.
Here's what guests on today's Squawk on the Street are watching before the opening bell:
What makes cash-rich companies a better option for investors these days? Bob Auer, portfolio manager with Auer Growth Fund, says there are a couple of reasons:
- They haven’t had to leverage themselves
"We’re in an environment of declining leverage," Auer says. "Leverage can help you, but it’s a double-edged sword. We’re in tight credit conditions and in a sideways market. So if you have two companies doing the same business, the company that leveraged themselves up has already shot their cannon out, so now things are tight and they have no flexibility, versus the second company with all the cash that has options. They can choose if they want to leverage or not."
- They’re self-financing and they have flexibility for the future.
"It’s like an individual who has lots of credit card debt versus someone who has $50,000 in the bank and owes nobody," Auer says. "The only way you get cash on your balance sheet is that you’re profitable and money is backing up on you quicker than you can build factories or whatever so they must have a good business plan."
Michael Cuggino, president and portfolio manager of Permanent Portfolio Funds, says cash-rich companies are a good bet because they have proven success running a business model. He likes:
Illinois Tool Works
Air Products and Chemicals
See more of what these and other analysts and money managers have to say, and get the latest financial news. Watch Squawk on the Street every weekday morning starting at 9 a.m. ET.
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Disclosure: Auer Growth Fund owns Skechers, Exxon Mobil, Western Digital and Medicis.