With interest rates near 0% these days, I view some stocks as "placeholders" -- investments that are nearly as safe as cash but offer better returns. Let's check a few such names out.
Now, I'll admit that I've long argued that interest rates shouldn't serve as a major factor in determining whether to hold cash or invest it. Instead, you should always make stock picks based on value and price. After all, a money-market fund that pays 0% or even slightly negative rates is better than buying an overvalued stock that tanks.
That said, interest rates do play an important role in today's near-0% U.S. rate environment by enhancing the value of quality, appreciating assets. For example, the ability to finance rent-producing real estate at something like 3% mortgage rates instead of 5% will boost that investment's value.
But not surprisingly, my list of good placeholder stocks is very short, as names must offer not only quality but safety to make the cut. So, while Alphabet (GOOG) , (GOOGL) is a high-quality company, it's too expensive in my view to serve as a placeholder investment.
Let's check out two stocks that actually do make the list:
I view Buffett's Berkshire Hathaway as the ultimate placeholder stock.
After all, owning Berkshire stock is like owning a piece of America due to its diversified holdings. You get a utility, a railroad, an insurance firm and companies that make ketchup, bricks, underwear, candy and pretty much everything in between.
You also get a "Fort Knox" balance sheet that will shine all the more brightly during moments of maximum market pessimism.
I see Apple (AAPL) as another placeholder name, in part due to the $62 billion in cash on its balance sheet.
Apple is also slowly shifting from a growth engine to a cash gusher -- and if AAPL allocates its cash properly (as it's been doing), you'll see plenty of both dividends and stock buybacks.
The Bottom Line
Today's low interest rates make it very tempting to shift cash into riskier assets. Indeed, if the Federal Reserve came out and said U.S. rates would stay at current levels for the next five years, the Dow Jones Industrial Average might shoot up to 50,000.
Of course, the Fed won't make any such statement, but investors should always look for smart ways to preserve capital -- even in today's low-rate environment.