Growing your wealth takes time and patience -- both of which have been put to the test in a big way over the past month.
The spread of the coronavirus disease (COVID-19) across the globe has wreaked havoc on equities, commodities, and bonds, leaving little refuge for investors. The uncertainty created by COVID-19 and the rising possibility of a recession has been particularly noticeable in the stock market, which plunged into bear-market territory faster than at any other time in history -- it took only 16 trading days. What's more, over a 22-session stretch, the value of the market-cap-weighted S&P 500 has fallen by 32% through this past weekend.
If you're a trader, it's been absolutely brutal. But if you're buying high-quality businesses for the long haul, then this decline could represent the opportunity of a lifetime.
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Of course, there's no telling how long social distancing and mandated business closures (to mitigate the spread of the coronavirus) could go on. This means businesses with plenty of cash and minimal debt are poised to shine brighter than their peers when we emerge from this crisis. If you have $2,500 in disposable cash (i.e., cash you won't need to pay bills or for your emergency fund), now is the time to put that cash to work in these four cash-rich stocks.
Alphabet
The FAANG stocks have consistently been outperformers for years, and there's no reason to believe they can't continue to perform better than the benchmark S&P 500. However, Alphabet (GOOG -2.05%) (GOOGL -2.17%), which is the company behind the popular Google search engine and streaming platform YouTube, could be in really good shape post-COVID-19. That's because Alphabet has a nearly $104 billion net-cash position and has generated over $28 billion in free cash flow over just the past 12 months.
One key to Alphabet's success is the company's incredibly dominant search platform. As of February 2020, it controlled about 92% of the world's search market share, which makes it to the go-to name for online advertisers. Its market share dominance makes it less likely to feel the sting if advertisers do wind up pulling back on spending during this hopefully short economic downturn.
Additionally, Alphabet is seeing a greater contribution to total sales from two of its faster-growing assets, Google Cloud and YouTube. Sales for Google Cloud and YouTube are up 120% and 86%, respectively, over the past two years, while their combined contribution to total company sales has increased from 11% to 14.9% over the same time frame.
In short, these higher-margin, faster-growing assets should lead to a cash-flow explosion for Alphabet in the years to come.
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Exelixis
Though it's far from uncommon for biotechnology companies to be loaded with cash, the vast majority of biotech stocks are losing money or paying down significant amounts of debt. Neither is the case for profitable drug stock Exelixis (EXEL -0.97%), which sports $852 million in cash, has only $51 million in total debt, and generated north of $500 million in free cash flow in 2019.
Exelixis' workhorse for the foreseeable future will be Cabometyx, its cancer drug that's approved to treat first-line and second-line renal cell carcinoma (RCC) and advanced hepatocellular carcinoma. Though these indications can be competitive, Cabometyx remains the only second-line RCC therapy to demonstrate the "trifecta" of a statistically significant improvement in objective response rate, progression-free survival, and overall survival. In other words, Cabometyx is going to be a cash cow for years to come, and Exelixis' cash position should grow significantly as a result.
Exelixis' strong cash flow has also given it more than enough reason to restart its internal research as well as to partner with other drugmakers to potentially expand the label indications for Cabometyx or its other approved therapies. Putting money to work in cash-rich Exelixis right now would be a smart idea.
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SSR Mining
Although gold-mining stocks are usually deep in debt since it can be costly to maintain mines and explore for additional production sites, that's not the case for SSR Mining (SSRM 4.18%), a personal holding I've highlighted frequently of late. SSR Mining has $282 million in net cash and is on track to eliminate $115 million in debt by month's end, reducing its remaining debt to approximately $173 million.
Headed by a fiscally prudent management team, SSR Mining is expected to see a roughly 30% improvement in production from its flagship Marigold mine in Nevada between 2018 and 2021, pushing gold output to 265,000 ounces per year. Meanwhile, the Seabee mine in Canada continues to yield record output every year. Though SSR Mining's silver-producing operations in Argentina are currently shut down by government mandate, this works out to a minimal hit to sales and virtually no hit to cash flow.
Furthermore, SSR Mining should benefit from higher physical gold prices. Personally, I've never seen a more perfect scenario for the shiny yellow metal, with global bond yields plunging and central banks around the world flooding the market with cash. If SSR Mining generated $140 million (in total) from its two gold mines last year with an average spot price of around $1,395 an ounce, imagine the cash it can generate if gold stays consistently above $1,500 an ounce.
Image source: Getty Images.
Skyworks Solutions
Finally, investors with $2,500 in cash that they can invest right now would be smart to give Skyworks Solutions (SWKS -0.74%) serious consideration. The wireless and broad market chip manufacturer has close to $1.2 billion in cash and a mere $160 million in total debt, all while generating around $810 million in free cash flow over the trailing 12 months. This means it's well-prepared for a sharp but short-term drop-off in economic activity.
The biggest growth driver for Skyworks Solutions is the rollout of 5G networks and what'll likely be an extended upgrade cycle for smartphones and other wireless devices. Skyworks typically derives at least 40% of its annual sales from Apple, which is expected to release its first 5G-capable smartphone later this year. Given the cult-like appeal Apple brings to the table, Skyworks should have a long runway of growth ahead of it thanks to 5G.
However, don't sleep on Skyworks' broad-market appeal (i.e., its non-mobile products). Roughly a quarter of Skyworks' sales are generated from Internet of Things (IoT) opportunities beyond mobile, and there's a double-digit growth opportunity in this arena.
