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.
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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.
