In times of uncertainty cash becomes king. There are no safe havens when fear driven panic forces Hedge funds and over margined investors to liquidate their assets. With USA, AAA treasuries being downgraded to AA+ by SP rating agency, there does not seem to be anywhere for investors to hide.
Politicians have shown the public their ineptitude in coming together to solve the countries mounting debt problems, therefore, the U.S. Treasury market may be hit by more downgrades in the future. So, even if the first downgrade by SP does not shake up the yields on Treasury notes and bills, then the threat of further downgrades certainly will. Who wants risk money in government bonds that will not hold their price in a future crisis? Consequently, where can investors go to find value, growth and safety?
How about looking at two stocks in the technology sector, that have very little debt, are excellent value, contain good growth prospects and sit on a massive pile of cash.
Microsoft has an AAA rating and may become a place that investors seek to hide.
It has $51 billion in cash and gives a 2.55% dividend. It goes ex-dividend on 16 August.
The 52-Week High on Jan 27, 2011 was $29.46 and the 52-Week Low on Aug 31, 2010 was $23.32.
It closed on Friday 08/06/11 at $25.68 and this seems to be a fair entry point for investors who do not already own the stock. If the stock goes down then averaging down from here could reap a decent return in future years?
Intel may not have a AAA, rating but it does sit on a pile of cash and returns an healthy 3.66% dividend. I have written on Intel in a recent article ("Is Intel a Safe Haven in Uncertain Times?") so there is no need to go over old ground.
It closed at 21.68 on Friday 08/06/11 and this seems to be a fair entry point for investors who do not own the stock and are looking for a sturdy shelter.
There may be considerable confusion and mayhem in the weeks and months ahead and those investors that can keep their heads while researching and investing in cash rich stocks, with decent dividends, may possibly finished ahead of the pack, in the pursuit of a profitable year.
Disclosure: I am long INTC, MSFT, TBT.