U.S. companies in the S&P 500 have more than 10 percent of their assets in cash, the most ever, according to Goldman Sachs. This allows them to deploy buybacks, mergers, dividends or capital investment to combat a slowdown in Europe, investors said.
"CEOs I speak to learned their lesson" following two recession in the last ten years, said Joseph Terranova, Virtus Investment Partners Chief Market Strategist. "The minute confidence comes back, there is something sitting there the market has never seen before."
Stocks are rebounding on optimism that global economic growth will hold up even in the face of a debt crisis unfolding in Europe. China said that exports increased 50 percent, lifting shares of companies leveraged to their economy like Caterpillar, the biggest mover in the Dow Jones Industrial Average. The Dow closed down 12 percent from its 2010 high on Wednesday.
"Companies with high free cash flow yields are likely to pursue M&A or return cash to shareholders via dividends and buybacks," wrote David Kostin, Goldman’s chief U.S. equity strategist in the note to clients today. Kostin predicts the S&P 500 will hit 1250 as this cash is deployed and recommends specifically stocks from the firm’s “dividend growth basket." Names in that basket include Altria, Abbott Labs and Clorox.
Cash relative to assets is much higher than it was at this stage of the economic recovery that began in 2002. It was less than 6 percent in mid-2002, according to the report. Goldman removed financial firms when calculating the cash-to-assets ratio.
"The cash is one of the reasons why we’re not seeing a deep dive into a bear market here," said Terranova. The ‘Fast Money’ trader also recommends Abbott Labs, which increased its quarterly dividend by 10 percent in February.
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John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.