If it’s safety you’re after, you may want to jump into cash-rich stocks.
That’s because they offer security and stability with financial resilience in any market.
For example, cash reserves act as a buffer during unexpected revenue shortfalls or market downturns. It also allows these companies to return value to shareholders by way of buybacks and dividends.
“Companies with ample free-cash flow are self-financing and may better withstand any deeper corrections in the market,” Morgan Stanley analysts said, as quoted by CNBC.
Look at DoorDash (DASH), for example.
With about $5 billion in cash on hand, the company is still generating strong free cash flow, with strong margins. According to Morgan Stanley, its DASH free cash flows are expected to grow about 26.6% this year and 41.5% in 2026. All thanks to very strong sales growth and an uptick in subscriptions for its premium service.
Analysts at DA Davidson just raised their price target on DASH to $260 from $190. Wells Fargo analysts also raised their price target on DASH to $306 from $280 a share.
Last trading at $260.20, we’d like to see DASH initially retest its prior high of $278.15.
Spotify (SPOT)
With about $6.85 billion in cash, the company, the company is also generating strong cash flow. According to Morgan Stanley, it expects for SPOT to grow its free cash flows by 27.6% this year, and by 34.3% by 2026. It’s still able to amass free cash flow because of strong revenue growth.
More often than not, traders will find themselves faced with a potential breakout scenario, position for it, and then only to end up seeing the trade fail miserably and have prices revert back to range trading. In fact, even if prices do manage to break out above a significant level, a continuation move is not guaranteed. If this level is very significant, we frequently see inter-bank dealers or other traders try to push prices beyond those levels momentarily in order to run stops. Breakout levels are very significant levels, and for this very reason there is no hard-and-fast rule as to how much force is needed to carry prices beyond levels into a sustainable trend.
Trading breakouts at key levels can involve a lot of risk and as a result, false breakout scenarios appear more frequently than actual breakout scenarios. Sometimes prices will test the resistance levels once, twice, or even three times before breaking out. This has fostered the development of a large contingent of contra-trend traders who look only to fade breakouts in the currency markets. Yet fading every breakout can also result in some significant losses because once a real breakout occurs, the trend is generally strong and long-lasting. So what this boils down to is that traders need a methodology for screening out consolidation patterns for trades that have a higher potential of resulting in a false breakout. The following rules provide a good basis for screening such trades. The fader strategy is a variation of the waiting for the real deal strategy. It uses the daily charts to identify the range-bound environment and the hourly charts to pinpoint entry levels.
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