(Bloomberg News) Stocks are "attractive" and investors should stay in the market to reap the rewards from companies with records levels of cash on their balance sheets, Oppenheimer & Co. said.

"We vehemently disagree with the notion" that "U.S. stocks are no longer a viable long-term investment," Brian Belski, Oppenheimer's chief investment strategist, wrote in a note yesterday. Investors should "maintain a steady and disciplined investment approach based on the fundamental merits of each area of the market."

Belski said investors will benefit as companies start to use their cash stockpiles for hiring, investments, share buybacks, dividend increases and acquisitions. He said much of the profit growth coming out of the worst economic downturn since the Great Depression was due to cost-cutting, while now, sales increases are boosting results and companies should begin putting their money to work.

Companies in the Standard & Poor's 500 Index are now trading in a range of 14 to 16 times estimated earnings, Belski said, which is "no longer 'cheap' but still quite reasonable from a historical perspective." Comparing "forward earnings yield to bond yields, stocks appear quite attractive," he added.

Cash Cushions

Executives have been hoarding cash to cushion their balance sheets after almost $1.8 trillion in global writedowns and credit-related losses since the financial crisis began. Free cash flow, or earnings minus capital expenses, for companies in the S&P 500 has increased to $113 per share, the highest level since at least 1998, according to data compiled by Bloomberg.

U.S. buybacks are growing at the biggest rate ever, with $270.5 billion in programs announced since January, compared with $125 billion in all of 2009, according to research firm Birinyi Associates Inc. The second quarter marked the first time no S&P 500 company cut its dividend since 2004, Bloomberg data show.

Oppenheimer is maintaining its year-end price target of 1,275 for the S&P 500, which would be a 9.9% gain from yesterday's close of 1,159.97, Belski said in the report. The earnings-per-share estimate stays at $81. The firm continues to prefer stocks over bonds, large stocks over small ones, and value companies over growth.