5 Cash-Rich Companies at Bargain Prices

"I don't look to jump over seven-foot bars: I look around for one-foot bars that I can step over." 

 -- Warren Buffett

If you're in the market for those one-foot bars Buffett loves, I've got a good starting point: companies beaten to such a pulp that just their net amount of cash on hand represents a significant portion of the share price. On a few rare occasions, you're being handed the actual business operations for free -- or at least, close to it.

Using the wisdom of our 130,000-investor-strong Motley Fool CAPS community, I went on a hunt for companies fitting these "scraped-off-the-pavement" criteria. Specifically, I looked for:

  • Estimates of profitability in 2009.
  • No long-term debt.
  • A high level of total cash in relation to current share price.

Pretty straightforward. Among others, I came across these five:

Company

Market Cap

Recent Price

Total Cash per Share

2009 EPS Estimates

CAPS Rating   
(5 stars max.)

Autodesk (Nasdaq: ADSK  )

$4.2 billion

$18.52

$4.33

$0.66

****

Deckers Outdoor (Nasdaq: DECK  )

$835 million

$63.80

$14.88

$7.09

**

Google (Nasdaq: GOOG  )

$121 billion

$384.69

$50.25

$21.06

***

Microsoft (Nasdaq: MSFT  )

$168 billion

$18.92

$2.28

$1.92

***

Priceline.com (Nasdaq: PCLN  )

$3.9 billion

$94.53

$11.30

$6.16

*

Data from Motley Fool CAPS and Yahoo! Finance, as of April 23, 2009. 

You hang in there, Mr. Softy
Don't like Microsoft? You're not alone. "I have no idea how anyone could have faith in this company after the last 10 years," says CAPS member goblinmason.

And can anyone disagree? It can't get its hands on Yahoo! (Nasdaq: YHOO  ) . Google owns the Internet. Apple (Nasdaq: AAPL  ) seems to dominate everything it touches. And while Macs aren't currently blowing up, my Foolish colleague Tim Beyers thinks there's plenty of upside potential. When it comes to staying on top of it, Microsoft has been the General Motors of the tech world.

But all mud-flinging aside, investors often forget that an unpopular company can still make a great investment if:

  • Its balance sheet is bulletproof.
  • Extreme barriers to entry and high switching costs keep competition at bay and customers locked in.
  • It has a plan to make up for past failures.
  • Its shares are pitifully cheap.

Microsoft fits nicely into all four categories. With shares down 40% over the past year, we're now looking at a company with a stranglehold on its key products, trading at less than 10 times forward earnings. It doesn't have a penny of debt, and free cash flow equaled over $14 billion last year. For Pete's sake, this tech company has a dividend yield of almost 3%. That isn't supposed to happen. Market panic is a powerful thing, Fools.

Besides, despite the shortcomings of the past few years, Microsoft's future might not be as dismal as some foresee. Hoping to silence the anti-Vista mob, Windows 7 is on track to get Microsoft back in the game. As CAPS member RogerAGrimes writes:

Disclosure: I work full-time for Microsoft.

I work with mostly Fortune 1000 clients, many of which are waiting patiently to switch to Windows 7. Where I heard resistance to Vista, I'm hearing a rush to Windows 7. All I'm being asked on a daily basis is "When will it be released?"

I'm talking tens to hundreds of millions of copies that will be sold in the next 1-2 years. Hardware refresh cycles are ending their useful life, stretched out by the recession, and now companies need to buy new computers. Do you think they will be buying Macs or Linux instead? 

Maybe a few percent will, but most will stay with Microsoft Windows ... You can think that I'm pushing marketing hype to you, but talk to any IT person you know inside of a mid-size or large company and ask them what OS management is planning on going to over the next year or two. There is huge pressure building to upgrade when Windows 7 comes out. You watch. You heard it hear first.

Well, there you go. Strong. Stable. Gushing cash, and looking to make a comeback. With shares this cheap, those are four traits investors seem to be almost entirely ignoring.

Your turn to chime in
What do you think about Mr. Softy? More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.

For further Foolishness:                                                            

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Google is a Motley Fool Rule Breakers recommendation. Apple and Priceline.com are Motley Fool Stock Advisor selections. The Fool owns shares of Autodesk, and has a disclosure policy.


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