FOCUS
–6
–4
–2
0
$2 trillion $1.7 T.
$5.7 T.
NOTE: EXCLUDES FINANCIAL COMPANIES SOURCE: MOODY’S FINANCIAL METRICS
2010 2011 2012 2013 2014 2015 2016 2017 2018
CASH DEBT
ASSETS AND LIABILITIES FOR U.S. COMPANIES
50
FORTUNE.COM // NOVEMBER 2019
i.ts cash holdings relative to total assets, then
compared the firms’ performance.
Two interesting results emerged. First:
Generally speaking, during the pre-recession
years, the more cash a company held, the
higher a valuation it earned—suggesting that
investors flocked to those stocks as clouds
gathered. Second, and just as notable: The
pattern shifted after the recession began.
From 2008 to 2010, shareholders migrated
away from companies that held too much
cash, while boosting the value of those that
were drawing down reserves. They seemed to
An S&P index that tracks stocks that have consistently increased
their dividends over several decades has risen 5.5% over the past
12 months, compared with 1.4% for the S&P 500. The ProShares
S&P 500 Dividend Aristocrats ETF (NOBL) offers investors an inexpen-
sive way to get exposure to those stocks.
Investors with an appetite for more concentrated bets can
look for companies whose cash troves leave them poised to do
particularly well if the economy slackens. These three companies
have high levels of cash holdings as well as ample potential to seize
future opportunities by investing those reserves.
Like many software makers, cloud-services provider Citrix
Systems (CTXS, $97) has begun shifting from one-off licensing
agreements with customers to a subscription model. This produces
radiation, to treat cancer, and Varian Medical Systems (VAR, $110)
commands 70% of the U.S. market for the machines that deliver
that treatment. Barriers to entry in the cost-intensive business
are high. And while sales of the multimillion-dollar machines
can take a hit in a downturn, Varian derives 46% of revenues
from maintenance and support for those machines—a “recession
resistant” business, says Morningstar analyst Alex Morozov. With
cash reserves equal to 13% of total assets, Varian can also continue
to invest in research in proton therapy, a newer form of cancer
treatment with no single market leader. While it’s years away from
potential profitability, Varian has positioned itself as one of two
go-to names in that space, says Morozov.
be rewarding companies that took advantage
of a slump to deploy their savings. When
there’s a recession, says Nason, money manag-
ers are attracted to companies that “invest
their way out of the downturn.”
HOW CAN MAIN STREET INVESTORS take advantage of
corporate cash? One tried and true approach
involves investing in high-dividend-paying
stocks, which rely on hefty cash holdings to
support their steady payouts. Many investors
are already chasing those treasure chests:
a steadier stream of cash. But it’s a painful
transition in the short run because annual
subscriptions cost less than multiyear licenses—
which helps explain why Citrix’s recent revenue
growth has looked sluggish. Still, subscriptions
have jumped to 62% of the booking mix, and
Deutsche Bank analyst Karl Keirstead says
Citrix’s core desktop-business sales have actually
accelerated about 10% this year. With cash hold-
ings at 13% of total assets, Citrix has the back-
stop to cover any hiccups from this transition.
Pharmaceutical stocks have traditionally held
steady during downturns; people still have to
take their meds when belts are tight. Shares of Eli
Lilly (LLY, $107) have slumped this year amid the
emergence of new competition for its bestselling
drug, diabetes medication Trulicity. But Gug-
genheim Securities’ Seamus Fernandez argues
that the company’s broad product line should
help protect it. With no one drug accounting for
more than 18% of its revenues, Eli Lilly is better
diversified than many of its rivals. Its substantial
cash reserves should help it to replenish its
pipeline, either through R&D or acquisitions—as
should its $8 billion purchase earlier this year of
cancer-drug maker Loxo Oncology. And Eli Lilly
has a higher-than-average 2.3% dividend yield.
Doctors have long used radiotherapy, or
INVEST
LESS CASH IN THE VAULT
Companies that hold more cash fare better when a recession
approaches. But corporate America saw its overall cash hold-
ings decline last year for the first time in at least a decade.
