Continued Market Volatility Benefits Those With Cash

For your weekend pleasure, more market ideas courtesy of this week's AAII.  

AAII Stock Ideas

Continued Market Volatility Benefits Those With Cash

Dear Fellow Investor,    In these volatile markets, we want to make sure our valued members get access to the best information possible to help you navigate the uncertainty. This is why you may have noticed the recent enhancements to our Stock Ideas Update email.  Each week, we give you education and stock ideas that are relevant to today’s market. Markets like these expose bargains, so we want to highlight a few ideas that can help you replenish your portfolio through sound strategies with good long-term performance.  If you find this information valuable and want an edge throughout this market volatility, you can access robust stock screens and evaluations through A+ Investor, a suite of rigorous investment tools that includes diversification analysis, stock evaluators and more than 50 stock screens updated every day.

This week, we present the strategy that focuses on cash-rich firms. Continuing market volatility attributed to banking industry fears and recession worries makes companies with solid cash positions more likely to succeed during these turbulent times. The AAII Cash Rich Firms screening model has an average annual gain since inception 1998 of 7.2%, versus 5.6% for the S&P 500 index over the same period.   Investing in Cash-Rich Firms   A healthy cash position provides important flexibility and safety to a firm. Cash-rich firms should be able to meet their debt obligations easier, decreasing the probability of a creditor weakening the position of the equity investors or even gaining control of the firm. During an economic slowdown, cash allows a cyclical firm to continue its research and development (R&D) efforts, as well as undertake capital expansion or productivity improvements, in anticipation of an economic rebound.   Firms with excess cash positions can also elect to distribute the cash to shareholders in the form of dividends. Many firms have also chosen to use excess cash to repurchase shares on the open market. This helps to boost the share price in the short term by providing demand for shares. And with fewer outstanding shares, the same level of net income boosts earnings per share.

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