Inflationary pressures and rising interest rates are weighing on consumers and businesses alike. There's no telling when this economic pressure will subside, but one smart move you can make as an investor is focusing on companies with fortress balance sheets. High cash balances, low or no debt, and the ability to generate cash flows will give any company the ability to take advantage of a tough market, whether that means acquiring beaten-down companies, issuing dividends, or buying back their stocks at discounted rates.
Here are four such companies worth your consideration.
1. Berkshire Hathaway
Berkshire Hathaway (BRK.A 0.43%)(BRK.B 0.50%) CEO Warren Buffett always stands ready to take advantage when times get tough because of the vast amount of cash the company keeps on its balance sheet. At the end of last year, Berkshire's cash pile ballooned to $144 billion. Buffett says he always aims to keep cash on hand "to be financially impregnable and never dependent on the kindness of strangers (or even that of friends)."
Berkshire has found opportunities in this market to put that cash to work this year, spending $51 billion on stocks during the first quarter.
NYSE: BRK.B
Key Data Points
Berkshire also uses little leverage in running the business. The debt-to-equity ratio shows you how much leverage a company is using. A ratio over 1 means the company uses more debt to fund its business; the lower the ratio, the lower the leverage used. Berkshire Hathaway's debt-to-equity ratio is a meager 0.24.
BRK.A Debt to Equity Ratio data by YCharts
Berkshire is one of the best at managing its capital and is willing to wait for years to find an attractive buying opportunity, which is why it has delivered a 20% average annual return over its 57-year history.
2. Visa
Visa (V 1.10%) operates a global payments network, moving money across 200 countries using debit cards, credit cards, and other payment products. Visa's strength is its dominant payments network, processing 80% more volume in 2020 than its closest competitor, Mastercard.
NYSE: V
Key Data Points
High profit margins and strong cash flows can strengthen balance sheets, which Visa has because the business is quite capital light. Visa's profit margins are fantastic, at around 51%. Another benefit of high margins is that the company doesn't need to use much debt, and its debt-to-equity ratio is around 0.58.
V Debt to Equity Ratio data by YCharts
Visa investors reap the rewards of this strong balance sheet, as the company spent $8.6 billion on dividends and buybacks for the six months ending March 31. Visa's high margins, cash flow generation, and strong position as a top payments network make it a stock you can buy today and potentially hold forever.
3. Tradeweb Markets
Tradeweb Markets (TW 2.38%) provides the biggest players in the financial system -- like central banks, hedge funds, and pension funds -- with a trading platform to buy and sell various assets. The company has done a stellar job of taking market share with its platform, putting it on solid footing.
NASDAQ: TW
Key Data Points
Tradeweb had $828 million in cash through the end of the first quarter, but what makes the balance sheet most appealing to me is that it doesn't carry any long-term debt. The only thing Tradeweb has is a $500 million revolving credit facility for short-term financing in the event the company needs it, but the company isn't currently drawing from it. Tradeweb also generates solid free cash flow -- money left over after paying for operations and capital expenditures, which can then be reinvested in the business, used for acquisitions, or returned to shareholders through dividends or share buybacks.
TW Free Cash Flow data by YCharts
Tradeweb Markets could benefit from volatility across assets, and there has been plenty of it to go around. Couple this with its strong balance sheet, and the company is another solid stock to own for the long haul.
4. T. Rowe Price Group
T. Rowe Price Group (TROW +1.21%) actively manages investments, competing with passive index funds that have grown in recent years. Despite this, the firm has grown assets under management (AUM) at 12%, compounded annually, in the past decade.
The business is another cash-generating machine, earning $3.3 billion in free cash flow last year on solid profit margins. It also sits on a $2 billion cash balance and has no long-term debt outstanding.
TROW Free Cash Flow data by YCharts
Strong capital management is why T. Rowe Price is a Dividend Aristocrat, having increased its dividend for 36 consecutive years. Not only that, T. Rowe Price is currently trading around its cheapest valuation since 1990. Its valuation, capital management, and dividend history make this another stellar stock to buy despite volatility in the market.
