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    Stock picks to buy: 17 cash-rich companies built for coronavirus recession - Business Insider

    Abstract:Where's the best place to put cash to work in the midst of a violent selloff? Citi thinks they have the answer.

      Antonin Jullier, global head of equity trading strategy at Citi, nailed down 15 stocks that look primed for the picking in the midst of a coronavirus-driven market rout.He focuses his analysis around four metrics — free cash flow, leverage, value creation, and overall value — to arrive at his recommendations.Jullier notes that “investors looking to buy in this wild market should start here.”Click here for more BI Prime stories.

      With the US equity market in the midst of a coronavirus-driven meltdown, eager investors with a strong risk tolerance may be wondering where to put cash to work. After all, stocks are more than 30% lower today than they were a little over a month ago.But just because equities have been pulverized doesn't mean you should just scoop up issues indiscriminately. Antonin Jullier, global head of equity trading strategy at Citi, thinks he knows exactly where to start the search — and he's putting a strong emphasis on quality, value, and leverage. “As explained by Citi's Global Strategy team, companies with high FCF [free cash flow] typically have higher margins and lower capex, thereby maximizing profitability,” he penned in a recent note to clients. “If you're going to dip a toe, start here.”To Jullier, companies with high free cash flow have a leg up on the competition. The optionality that comes hand-in-hand with robust cash flows makes these firms especially enticing during times of turmoil. They can deploy their capital in a multitude of ways.

      Allow him to explain.“Investors looking to buy in this wild market should start here given that this metric looks attractive as companies with high FCF yield have a proven ability to generate cash that can be used for M&A purposes, organic growth, buybacks, or dividend distributions to shareholders, especially if it is accompanied with lower balance sheet leverage,” he said.But Jullier's analysis doesn't stop there. In total, he studies a confluence of four metrics to arrive at his recommendations.Here's the exact screening criteria he leveraged.High FCF/Enterprise Value - “Screen for companies with a pre-tax FCF/EV yield of greater than UST+300bps. This filters for companies that have been able to maximize profitability.”Low Leverage - “Companies that rank in the bottom 60th percentile in terms of leverage, as measured by net debt/EBITDA, total debt/EV, and quick ratio. This would remove any names that have burdened themselves with too much leverage during the period of QE.”Positive Economic Value Added (ROIC>WACC) - “Screen for companies with ROIC/WACC of greater than 1. This gets rid of any companies that erode rather than create value for investors.”Beta to Value - “Companies with greater than 0.5 beta coefficient to the Pure Orthogonal Value Factor. This serves as a broad cut for value names in the S&P.”

      With all of that under consideration, here are 17 stocks identified by Citi as having exceptional high pre-tax free cash flow yield. They're listed in increasing order.

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    United States Dollar

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand
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