Who are such “cash cows” in the stock market?

Cash cows on the stock market.

The investing world can be challenging to understand, as financial advisors, investment companies, and traders often use confusing jargon.

One of these terms is “cash cow“. It is considered one of the most reasonable investments that an investor can make because of the possibility of obtaining a constant and reliable profit without much risk.

But how do you know which investments are cash cows?

And where exactly did this strange name come from?

What is a cash cow in the stock market?

“Cash cow” is a name for low-maintenance investments that provide consistent returns without the need for a lot of extra capital or even attention. These companies or businesses in a mature, slow-growing industry often have a significant market share and require little investment beyond the initial cost. As a result, those who invest in cash cows will get a healthy and long-term profit, and they will not need to do anything.

It can also assign the name to products or assets within the business that provides a stable and reliable source of income and profit, allowing it to invest in derivatives, new services or innovations. A striking example is Apple’s iPhone, which brings incredible company revenue every year and will enable you to reinvest profits in developing new technologies in other business areas.

“Cash cow” considers safe investments which help ensure a positive cash flow in your portfolio. However, companies such as Microsoft and Apple show a cash cow level. The initial investment price is often relatively high. Many people try to invest in companies that they are confident will provide healthy profits that exceed the market’s growth rate.

Where did the term “cash cow” come from?

The term “cash cow” dates back to the early 1970s, when the Boston Consulting Group developed an industry-defining “growth and share matrix” or “BCG matrix”. It was created to help investors plan their next steps so that their portfolio continues to bring stable profits.

The term comes from our past agricultural society, as “cows” were seen as an initial safe investment for innovative landowners long before the stock market existed. The cost of dairy cows is relatively tiny compared to their original purchase price. Still, they can give milk throughout their life, which provides the owner with a reliable and stable source of income and the opportunity to keep other parts of the farm afloat.

Why is it important to have cash cows in your portfolio?

Investing money is never risk-free, and you can permanently lose money. However, cash cows are an essential part of any experienced investor’s portfolio, as they will provide reliable returns with relatively low risk. They can be a great way to generate cash flow for other struggling companies in your portfolio or help you invest in riskier ventures without having to spend the money yourself. They will also continue to profit even after you pay back your initial investment, meaning they are a source of long-term income.

Famous cash cows for investors:

• Pfizer (PFE);
• Costco Wholesale Corporation (COST);
• Broadcom (AVGO);
• AbbVie (ABBV);
• Royal Dutch Shell (RDS-B);
• GlaxoSmithKline (GSK);
• Cisco Systems (CSCO);
• Gilead Sciences (GILD);
• Coca-Cola Company (KO).

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