Investors are bracing for a bleak 2023 by doubling down on well-capitalized companies. “We prefer companies that generate cash over those that need capital to grow. Not only are interest rates likely to remain higher than they have been in the recent past, but we are likely exiting an era of hyper-accommodative monetary policy,” Bank of America said in a Jan. 16 note. The higher the free cash flow yield, the better placed a company is to service its debt obligations. A business with high free cash flow also has quicker access to cash in an emergency or opportunity. “Companies that pay dividends, companies that have great cash flows, quality balance sheets, international stocks — especially international stocks — that’s where the puck has already gone, and I think it’s going to continue,” Josh Brown, CEO of Ritholtz Wealth Management told CNBC last week. Using FactSet data, CNBC Pro looked for stocks that have lots of money and could be well positioned for a difficult year. The following criteria were used: Stocks with high free cash flow yields of more than 10% Low volatility (beta of less than 1) Potential upside potential to target price 40% or more buy recommendation Telecoms, healthcare and consumer sectors, which generally represent safe havens in a downturn be considered. US-listed Chesapeake Energy Corporation was the only energy stock to hit the screen, with a free cash flow yield of nearly 14%. Analysts gave it an upside potential of 53.7%, and the majority (76.5%) gave it a buy rating. The stock, like most energy companies, has performed well over the past year and is already up around 40%. Last week, the company announced that it had agreed to sell a portion of its South Texas operations for $1.43 billion in cash. Companies from the healthcare and pharmaceutical industries also made the cut, such as the US companies Bristol-Myers Squibb and CVS Health. Financial services firm Cantor Fitzgerald said in a January. 17 indicated that 2023 could be Bristol-Myers Squibb’s “breakout year” and gave the stock an Overweight rating. “BMY has one of the best 2023E growth profiles of the US drug group…which is striking in a recession year,” Cantor wrote. Canadian finance firm Fairfax featured the highest FCF return on the list — at 30.4%, while Hong Kong-listed WH Group — the world’s largest pork producer — received the highest buy rating at 94%. Two telecom companies — Britain’s Vodafone Group and Germany-based Deutsche Telekom — had some of the highest FCF returns at 27% and 23.7%, respectively. Argus Research in a Jan. 20 report found that Vodafone shares have outperformed the benchmark for the past three months. It added that its current valuation is reasonable given the slow growth outlook. — CNBC’s Michael Bloom and Fred Imbert contributed to this report.
Analysts love these stocks that are spending big
