Billionaire investor George Soros has reportedly upped his bet on a major US stock market correction. Soros is known for his often bearish outlook and also for his astute market timing which saw him make over one billion UK pounds in 1992 on a bet that sterling would decline.
While most investors don't have the means to take the types of positions that Soros does, that's ok as arguably it's to most investors' advantage to not try and time the market. It can be a better strategy to simply own shares in great businesses and ride the ups and downs of market volatility.
If you are going to remain fully invested but are looking for a way to position your portfolio in case of a substantial market decline, companies with cash on their balance sheets can be a good option. There are at least two advantages of cash rich companies. Firstly, cash becomes even more valuable in a market sell-off – the cash acts as a limit on the downside risk for a stock. Secondly, a company with available cash can act quickly to capitalise on cheaper asset prices to snap up bargains when bearish sentiment is at its highest.
Two cashed-up stocks
Flight Centre Travel Group Ltd (ASX: FLT) had a net cash position of $357.3 million as at 31 December 2013. That's an impressive amount of firepower and when coupled with the debt which the business could take on allows plenty of optionality for Australia's leading travel agent.
Premier Investments Limited (ASX: PMV ) had a net cash position of $241 million for the period ending 25 January 2014. Given the beaten-down state of much of the retail sector, there is certainly the potential for Premier to put this cash to clever use and make a value accretive acquisition at some point in the next few years.
Stellar management
Perhaps most important of all is the fact that these two companies are headed by their founders, namely Graham Turner and Solomon Lew respectively. Both leaders have track records of creating shareholder value which can give shareholders in Flight Centre and Premier Investments confidence that these cash piles would be put to good use during a bear market.
