The fear created by the outbreak of COVID-19 coronavirus is taking the world by storm, and the specter of a pending recession is looming. While recessions are a natural and expected part of economic systems, they also raise justifiable concerns about the ability of businesses to survive during an extended downturn.
History has shown that companies with strong balance sheets and adequate cash reserves are much better positioned to recover once the economy emerges from the slump. With that in mind, let's look at three stocks that have strong cash balances that will help them survive and even prosper in the days and weeks to come.
Image source: Microsoft.
1. Microsoft
Microsoft (MSFT -1.00%) may be better positioned than many companies, as a number of its revenue streams may be more resilient during a recession. For example, products like Office 365 and Dynamics are contract- and subscription-based, and businesses that remain open will likely need to continue using its Azure and commercial cloud products in order to stay connected and afloat.
A big cash hoard will also help insulate Microsoft from the damaging effects of the downturn. The company's balance sheet is flush with cash, topping out at more than $134 billion. Even backing out Microsoft's debt of just short of $70 billion, that still leaves the company with nearly $65 billion in reserves.
There are other reasons to be optimistic about Microsoft's future. The company's collaborative communications tool, Microsoft Teams, has seen a surge of demand since the coronavirus outbreak. The number of daily active users (DAUs) soared, growing to 44 million DAUs, up 120% since it reported 20 million DAUs back in November. Growth has spiked even more recently, with 12 million new users over the past seven days alone.
Image source: Google.
2. Alphabet
There's little doubt that Alphabet (GOOGL -3.37%) (GOOG -3.33%) will face a tough road ahead as the economy prepares for recession. The majority of the company's revenue is generated by advertising. In fact, search giant Google's advertising, which includes search and YouTube ads, was responsible for 83% of the company's $162 billion in revenue last year. As the downturn intensifies, companies will be looking to tighten their purse strings any way they can, with marketing budgets typically among the first to be slashed.
While Alphabet will face difficulties, its pristine balance sheet will help minimize the damage. The technology company has cash and marketable securities of nearly $120 billion, but has less than $5 billion in long-term debt.
This stockpile of cash should see Alphabet through even a prolonged slump.
Apple's Fifth Avenue store in New York. Image source: Apple.
3. Apple
Apple (AAPL 2.48%) was hit by a double whammy with the outbreak of the coronavirus.
The epidemic began its relentless march across the globe in China, shuttering many of Apple's production facilities in the most populous country. While many of the manufacturers are now open for business, they have been slow to return to capacity, leaving Apple to warn that temporary constraints on its supply of products -- particularly the iPhone -- will cause the company to miss the quarterly revenue guidance it issued for its fiscal second quarter. For context, the iPhone accounted for 62% of Apple's $266 billion in revenue in fiscal 2019.
Additionally, retail store closures that initially began in China have now swept across the globe, an effort to disrupt the COVID-19 outbreak in its tracks. Customers can still order products on the company's website, but the shuttering of its retail stores around the world will no doubt negatively affect demand.
Less than a decade ago, Apple was defending its cash position, but nobody's questioning the company's cash pile now. All things considered, Apple is better positioned than many other companies to survive a recession. Its stockpile clocks in at a whopping $207 billion when you include its long-term marketable securities. The iPhone maker can't spend all that cash, however, as it's saddled with debt of about $108 billion, leaving a still-respectable war chest of $99 billion to ride out the economic storm.
Show me the money
When it comes to a recession, cash is king, and the companies with the biggest stash will have a much greater chance of success when it comes to a prolonged slump. Given the rock-solid balance sheets and the sheer magnitude of cash held by these three tech giants, each company should have no problem weathering this economic downturn and coming out the other side as strong as ever.
