2 cash-rich ASX companies to buy now

Here are two ASX-listed shares boasting substantial cash reserves.

| More on:
Person with a handful of Australian dollar notes, symbolising dividends.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In a volatile market, arguably cash is king.

Companies with strong cash reserves not only have the flexibility to weather economic downturns but also the ability to seize growth opportunities when they arise.

For retail investors, identifying cash-rich companies can potentially provide a safer and more rewarding investment path.

In this article, I will spotlight two ASX shares with robust cash positions, which I think are attractive investments for those looking to add both stability and growth potential to their portfolios.

There are many ways to measure the strength of a company's cash position. However, here, I will mainly use the companies' reported net cash balance as a percentage of their market capitalisations as my guide.

Before jumping in, it's worth noting that this is my initial screening only and you should always do your own research or consult a financial advisor before making investment decisions.

With that said, here are two ASX shares I like based on their cash holdings relative to their market caps.

A2 Milk Company (ASX: A2M)

First up is A2 Milk Company. It is encouraging to see A2 Milk Company significantly recovering from its downturn in terms of its share price. The New Zealand infant formula business has managed to stage a substantial comeback from the hardships caused by the decline in its daigou market.

Daigou is the term used to describe individuals engaging in cross-border exporting. Many Chinese students in Australia sell premium Australian products back to China, including A2 Milk's formula, but this market was severely impacted by the reduction of international students in Australia during the pandemic.

As the share price chart below illustrates, the A2 Milk share price declined from a high of approximately $20 in July 2020 to a low of around $4 in May 2022. Then, from there, the share price has recovered by around 28% to over $7 today. While this is a remarkable recovery from the bottom price, the share price still remains at below half its peak price.

According to its FY24 half-year result, the company has gained a "significant" market share in the Chinese label infant formula over the prior few years, which supported its revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) growth.

A2 Milk has cash and short-term investments of NZ$792 million and a small debt position of NZ$57 million, including lease liabilities as of 31 December 2023. Its net cash balance of NZ$735 million accounts for approximately 13% of its current market capitalisation.

GR Engineering Services Ltd (ASX: GNG)

GR Engineering is a small Australian engineering and consulting firm that provides services to the mining and mineral processing industries.

The company specialises in designing, building, and managing mining projects, ensuring they run smoothly and efficiently. Known for its expertise and reliability, GR Engineering helps bring mining projects to life both in Australia and around the world.

GR Engineering shares have hovered around $1.80 to $2.40 per share since 2022 after surging from less than $1 in June 2019.

In February 2024, the mining services company had a total cash and short-term investments balance of $58 million. Thanks to its asset-light business model, GR Engineering doesn't hold much debt. Adjusting for that, the company had a net cash position of $48 million, equivalent to 13% of its current market capitalisation.

Recently, however, management cut its revenue guidance. It now expects FY2024 revenue in the range of $415 million to $430 million, down from its previous guidance of between $500 million and $530 million. While this is disappointing, the good news is that the company still expects its EBITDA to be between $50 million and $51 million, which indicates year-over-year growth in profit.

Foolish takeaway

A company's cash holding can be one factor to consider when looking for safety and potential returns. Here, I've reviewed two ASX-listed companies with strong cash reserves, which could help them to deliver stable growth through the thick and thin of business cycles.

Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk and Gr Engineering Services. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Cheap Shares

A woman scratches her head, is this a no-brainer?
Cheap Shares

Are Woolworths shares a no-brainer buy?

Analysts see huge value in this retail giant's shares at current levels.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Cheap Shares

'Undervalued': 3 ASX 300 shares to buy following significant share price falls

Experts have named these ASX shares as buys.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 ASX 200 shares this fund manager rates as really cheap buys

These 2 ASX shares could be too good to ignore.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 cheap ASX dividend shares I'd buy now for future income

These stocks look good value to me and pay good yields.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Cheap Shares

How I'd try to turn an empty portfolio into $300k by buying cheap ASX shares, starting now

If I was looking for cheap ASX shares today, here's what I'd buy.

Read more »

Couple looking at their phone surprised, symbolising a bargain buy.
Cheap Shares

3 ASX shares that look way too cheap to ignore right now

Analysts think these shares could be in the bargain bin right now.

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Cheap Shares

2 cheap ASX shares to add to your portfolio before they get expensive

Analysts think these shares are undervalued at current levels.

Read more »

A woman sets flowers on a side table in a beautifully furnished bedroom.
Cheap Shares

2 cheap ASX shares that offer at least 9% dividend yields

I'd look at these stocks for a cheap valuation and big passive income.

Read more »