The ability of a given company to produce free cash flow is one factor you must consider when looking for stocks to buy. Holding stock in a firm with plenty of funds on hand could offer you peace of mind that it will be able to meet its debts with money left over to take advantage of expansion possibilities, distribute payouts to investors, or buy back shares.
Whether you’re aiming for stability or income, these three stocks are cash-flow-producing machines. Each is high on my watch list right now. But for long-term investors, I think these cash flow-producing stocks are worth considering on any significant market pullback moving forward. Let’s dive in.
| CVS | CVS Health | $72.26 |
| JNJ | Johnson & Johnson | $162.62 |
| MCD | McDonald’s | $289.76 |
CVS Health
As far as companies with strong cash flow are concerned, CVS Health (NYSE:CVS) is certainly worth a look. CVS is a well-known large-cap company that has lost its appeal and popularity among many investors as social normalization trends gained momentum. Pandemic-driven tailwinds have faded. Accordingly, CVS stock has declined considerably from its peak seen last year. On a year-to-date basis, shares are down more than 20%. This decline is even worse since the beginning of 2022.
That said, I think there’s a reason why investors may view this as an opportunity to buy low and benefit from a rebound. Analysts on Wall Street share this sentiment, considering CVS a strong buy with an average price target of $112.10, representing a potential upside of 47%. This optimistic outlook suggests that CVS could be a valuable addition to any portfolio of blue-chip stocks.
CVS Health has expanded its business by taking advantage of its large retail footprint, adding America’s most significant pharmacy benefits management business. This has helped the company in other areas, such as health insurance benefits management, further strengthened by acquiring Aetna for around $78 billion in 2018. In the US, CVS Health has become among the top companies for managing medical insurance coverage.
CVS Health’s capability to offer various health benefits directly positions it to attain stable and substantial profit growth. Because of this, it is a desirable choice for traders seeking long-term potential.
Johnson & Johnson
The firm is responsible for producing several health and personal care product brands such as Neutrogena, Listerine, Tylenol, and Aveeno. These world-class brands have provided strong cash flow for Johnson & Johnson (NYSE:JNJ). Accordingly, investors shouldn’t be surprised to see the dividend performance of JNJ stock over the long term. For the past 60 consecutive years, Johnson & Johnson has raised its dividend. Companies without strong cash flow simply aren’t able to do so. And notably, investors anticipate the firm to do so once again in April. Currently, JNJ stock yields slightly less than 3%.
Although the company’s growth is not astonishing, it is stable. According to experts, the current year and consequently’s sales increase will be about 3%, and revenue increase will be around 3.5% in 2023 and 2024. Despite Johnson & Johnson’s solid growth, investors can avoid paying a high multiple to own JNJ stock. Given the business’s constant success, stocks sell at a reasonable cost of about 15 times the company’s estimated profits.
While Johnson & Johnson may not be a high-growth stock like a young biotech player, it has a solid track record of delivering increasing earnings over time. It is taking measures to ensure continued growth. Furthermore, the company has an excellent history of growing these dividends, so you can anticipate frequent payouts as shareholders. These elements make an ongoing shareholder’s decision to buy Johnson & Johnson stock appealing.
McDonald’s
The current news on McDonald’s (NYSE:MCD) highlights the harsh reality of the business world. Even successful businesses like McDonald’s and Disney undergo restructuring and layoffs.
The McDonald’s Corporation is a renowned fast-food restaurant with outlets worldwide. It is divided into three segments: the U.S., International Operated Markets, and International Developmental Licensed Markets and Corporate. Despite the challenges faced by the restaurant industry due to the pandemic, McDonald’s continues to display strength, as evidenced by its positive financial performance in its latest report.
McDonald’s has made notable advancements in its digital channels and technology platforms, which has put the company in a position to face any potential future crises. Several analysts have recently commented on the promising prospects for McDonald’s stock.
In addition, McDonald’s Q1 2023 earnings report shows a remarkable 13% increase in revenue, which is quite impressive given the challenging year the food service industry has faced worldwide. The company’s substantial revenue of $5 billion this quarter is primarily attributed to high demand from international markets and robust digital sales. This fast food giant continues to post incredible cash flow numbers, which I don’t see shrinking any time soon.
The restaurant industry can be uncertain, but McDonald’s Corp. has a track record of achieving positive results year after year by making strategic management decisions and implementing innovative ideas to keep up with the constantly evolving business environment. This is a long-term winner for investors seeking a core portfolio holding for the next 10 to 20 years.
On the date of publication, Chris MacDonald 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.