Buy these stocks with strong balance sheets, cash flow
It’s a tough year to be invested in stocks, with the stock market experiencing a seemingly never-ending cycle of gyrations. Major U.S. indexes fell last week, with the Dow Jones Industrial Average ending the week at 29,888.78 — just a day after it dipped below the key 30,000 level for the first time since January 2021. Meanwhile, the S & P 500 posted its worst week since 2020 and Nasdaq Composite ended the week 4.8% lower. And with the Fed poised to pursue a more aggressive rate hike policy, that could spell even more volatility ahead for equities. Venture capitalist Kevin O’Leary believes it is futile to try to time the market. “I can’t time the market. I just can’t. I’ve tried so many times, but you just can’t,” O’Leary, who is chairman at O’Leary Ventures, told CNBC’s “Squawk Box Asia” on Thursday. Instead, he prefers owning companies that he thinks are sustainable. “What I like to own are companies that are not going to zero. Moderna is not going to zero, Pfizer is not going to zero and Nestle is not going to zero. They have businesses that are very sustainable,” O’Leary said. Moderna and Pfizer are both pharmaceutical firms — a sector which often has significant cash flow and steady dividends and, as such, is seen as more resilient during a downturn. Both companies have been at the forefront of the global Covid-19 vaccination effort. The U.S. Food and Drug Administration on Friday authorized Pfizer’s three-dose vaccine for children 6 months to 4 years old, and Moderna’s two-dose vaccine for children 6 months to 5 years old. Biopharma stocks currently form about 4.5% of O’Leary’s portfolio, while the broader health care sector accounts for about 20%. Investors also like consumer staples such as Nestle as they are less impacted by economic cycles and enjoy relatively stable earnings growth and dividend payments. “I own companies with strong balance sheets that make money. Now the prices of their stocks go up and down based on people’s perceptions of what the price-to-earnings ratio should be. And even health care has not escaped the downturn. But the companies are strong,” he added. In addition to their strong balance sheets, O’Leary also likes these companies for their good cash flows — part of which are distributed back to investors as dividends. The three stocks are all in the red this year, but Nestle and Pfizer have continued to pay dividends. Nestle has a dividend yield of 2.6%, while Pfizer’s is 3.4%. Moderna does not currently pay a dividend. ‘Never more than 20% in any one sector’ The massive market correction this year has undoubtedly spooked some investors, but O’Leary is unfazed by the short-term price declines. In fact, he is doubling down on the names he believes in. “We’re not up and we’ve had a rough couple of months like everybody else, but I’m a long-term thinker about this… What I do is I try and find re-entry points because I’m always trying to deploy capital. If I believe in the company’s story, I put more money to work on a correction,” he said. O’Leary said he recently bought undisclosed stakes in Walt Disney , Adobe and DocuSign . He acknowledged that the stocks have come down “a lot” but is adamant that they will bounce back at some point. He is also careful about how manages risk in his portfolio. “You have got to have diversification,” he said. His golden rule? “Never more than 20% in any one sector, and never more than 5% in any one stock” he said, describing it as a strategy that has worked for him “for decades.”
