3 Cash-Gushing Giants for Set-It-and-Forget-It Investing

Stocks to buy

With an overbought market and prospects of higher-for-longer interest rates, cash-rich stocks are savvy bets at this point. These companies can generate substantial and free cash flows, which stand out as prudent investments. This financial strength is key for firms to manage debt efficiently throughout any phase of their business cycle.

Let’s examine three top cash-rich stocks that have been screened using two key liquidity metrics, including the quick and the cash-to-debt ratios. A cash-to-debt ratio exceeding one shows that a firm can easily cover its debt obligations, pointing to robust financial health. Similarly, a healthy quick ratio, which excludes inventory, reflects stronger liquidity of short-term assets.

All three featured companies shine, with the aforementioned ratios soaring above one. These strong metrics demonstrate their exceptional financial flexibility and capacity to generate impressive long-term free cash flows. Moreover, these numbers position these stocks as leading picks for investors seeking stable growth opportunities.

Meta Platforms (META)

In this photo illustration the Meta logo seen displayed on a smartphone and in the background the Facebook logo

Source: rafapress / Shutterstock.com

Quick Ratio: 2.68x

Cash-To-Debt Ratio: 1.54x

Tech giant Meta Platforms (NASDAQ:META) continues to flex its muscles with its portfolio of the world’s top social media and advertising juggernauts, including Instagram and Facebook.

Since Chief Executive Officer (CEO) Mark Zuckerberg declared the ‘Year of Efficiency,’ last year, we’ve seen an incredible turnaround in Meta’s fortunes.  It continues growing its top-and-bottom-lines at a rapid clip, blowing past estimates in the past five consecutive quarters.

In recent results, revenues surged 27% year-over-year (YOY) while net income soared by 117%. Consequently, its levered free cash flow on a trailing twelve-month (TTM) basis stands at $35.1 billion, more than 50% higher than its 2022 figures. Further, it remains an advertising titan, raking in roughly 98% of its Q1 sales from ads.

Thanks to its treasure trove of user data, the company excels in enabling advertisers to target relevant audiences with stunning accuracy. Beyond advertising prowess, Meta Platforms is venturing into the artificial intelligence (AI) landscape with Meta AI. It is revolutionizing interactions on META’s platforms by answering queries, solving problems and more.

Taiwan Semiconductor (TSM)

Close up photo of microchip (aka semiconductor chip, semiconductor device, Integrated Circuit) hold in tweezers with TSMC (TSM) logo on a background.

Source: Ascannio / Shutterstock.com

Quick Ratio: 2.13x

Cash-To-Debt Ratio: 1.94x

Shares of Taiwan Semiconductor (NYSE:TSM) have been on a tear over the past year, supercharged by its pivotal role in the AI revolution. TSM commands a staggering 90% of the AI chip market. As a key player in the AI supply chain, TSM’s influence continues to expand with every quarter.

Furthermore, TSM’s robust financial health and promising trajectory is underscored by its consistent top-and-bottom-line growth. In Q1, it posted a superb 16.5% increase in sales YOY, while net income grew by 9%, amounting to an impressive 38.1% net profit margin. Moreover, with nearly $11 billion in free cash flows on a TTM basis, TSM’s financial stability and growth prospects are eye-catching to say the least.

In the upcoming quarters, TSM will likely hike prices, setting the stage for a flood of free cash flows that will bolster its financial prowess. Additionally, the company is boosting its capabilities by opening a powerful new chip packaging plant, enhancing its AI chip production capacity.

Tencent Holdings (TCEHY)

Source: testing / Shutterstock.com

Quick Ratio: 1.45x

Cash-To-Debt Ratio: 1.12x

Tencent Holdings (OTCMKTS:TCEHY) is a true giant in China’s tech landscape. It thrives across multiple domains, including video games, fintech and digital advertising. Over the years, Tencent Holdings has become an indispensable part of daily life in China. For instance, its WeChat super-app boasts a whopping 1.2 billion monthly active users.

Despite facing multiple headwinds, including stringent regulations and dampened Chinese consumer spending, TCEHY has navigated these rough waters with aplomb. This is shown in its robust operating results, delivering a strong top-and-bottom-line beat in Q1. Its revenues came in at $22.5 billion, marking an excellent 6% increase YOY. More impressively, its net income surged by a spectacular 62% to $6 billion.

Moreover, in a recent article, InvestorPlace’s own Michael Que highlights how Tencent is positioned enviably to capitalize on China’s strong embrace of short-form content. Remarkably, 15% of China’s retail products are sold via social channels, three times higher than the U.S. rate, setting Tencent Holdings on a path for continued growth.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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