Show investors the money, but turn it into cash.
That’s the message from Barclays’ US equity strategists, who highlighted more than a dozen S&P 500 SPX, -0.47% companies with the best cash cushions to weather any economic slowdown.
Businesses and individuals alike have been shedding cash reserves accumulated from fiscal stimulus and weak spending on services, a team led by Maneesh Deshpande noted in a June 7 note to clients. They said that for the second straight quarter, S&P 500 ex-financials are burning cash at a rate of about $70 billion per quarter, bringing cash/assets down to pre-pandemic levels.
Barclays Research, Refinitiv
Most of the cash goes into buybacks, with levels at a new all-time high around $230 billion, led by FANMAG – Meta (formerly known as Facebook) META, -1.06%,
Amazon AMZN, -0.98%,
Netflix NFLX, -2.47%,
Microsoft MSFT, +0.30%,
Apple A`L, -1.03%,
and Google GOOGL, -0.23% – Industrials and Consumer Discretionary.
The higher inflation is slowly but surely eroding the cash holdings of households and companies.
The chart below shows the 25 stock names in the S&P 500 that Barclays expects will have the strongest cash reserves by the end of 2022, and 25 of which will have the weakest. Deshpande notes that the drop in excess cash is surprising, and if so is continuing at the current pace, which would mean “tighter financial conditions will mean even more headwinds than we previously thought.”
The strategists also note that households are leaning on excess savings due to higher inflation and negative real wage growth after accumulating $2.5 trillion in excess cash on the back of a decline in service consumption and exceptional fiscal stimulus. Barclays is underweight consumer-related sectors as much of the dwindling savings is held by higher-income households.
Barclays, Bloomberg
Noting that it’s a huge unknown how much the Federal Reserve will need to raise interest rates by late 2022 or early 2023 to tame inflation, they said they would prefer to invest in companies that are storing their cash reserves in the US next few years will not use up quarters.
Among the companies that Barclays predicts will have the most cash assets by the end of 2022, the top five on this list are Vertex Pharmaceuticals VRTX, -2.60%,
Las Vegas Sands LVS, -4.47%,
Incyte INCY, -0.96%,
Activision Blizzard ATVI, -0.44% and Live Nation Entertainment LYV, -1.22%.
The full list is here:
Barclays, Refinitiv
Barclays also provided a list of companies it expects to face liquidity issues through the end of the year as financial conditions tighten. This includes EFX, -0.95%,
Martin Marietta Materials MLM, -0.09%,
Akamei Technologies AKAM, -0.63%,
Quanta Services PWR, -1.03% and Lowe’s LOW, +2.24%.
Barclays, Refinitiv
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