Stocks to buy, 21 companies pay off debt as cash dries up: Goldman

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  • S&P 500 companies will cut their cash outlays by a record 33% to $1.8 trillion this year, Goldman Sachs strategists estimate.
  • They expect leaders to focus on maintaining sufficient dry powder to survive the economic crisis.
  • Companies that focus on cleaning up their balance sheets and paying down debt perform better than those that don’t.
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The coronavirus crisis is forcing companies to completely rethink their cash management.

This year, cash spending by S&P 500 companies will plunge a record 33% to $1.8 trillion, equity strategists at Goldman Sachs estimate. Share buybacks, dividends and investing for growth – options available to executives – are also expected to fall this year.

Instead of spending on these alternatives, leaders should focus more on maintaining enough dry powder to survive the economic crisis.

Another wise use of cash during this downturn is debt reduction, and companies that reduce debt are rewarded by investors. A basket of Goldman Sachs stocks with debt reducers has outperformed debt issuers by eight percentage points year-to-date (-18% vs. -26%), chief equity strategist David Kostin said in a recent note. Moreover, a similar basket of companies with strong balance sheets beats its weaker counterpart.

These trends underscore the appeal of cash-burdened companies, and Goldman Sachs has identified dozens of such stocks that are doing well on this front.

Below is the list of 21 new names he added to his recently rebalanced basket of debt reducers. The middle stock in the overall basket has paid off debt equal to 5% of the company’s value over the past year.

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