The Richest Companies for Your Portfolio

Cash is king, and these companies have a lot of it.

Credit markets have markedly improved since the beginning of the year; however, they still remain tight in certain instances. Unemployment is expected to remain elevated for an extended period of time. While consumer spending did see an increase in November, much skepticism remains as to whether there is enough to sustain a robust economic recovery. Businesses have also been cautious to invest. With these forces at play, liquidity has become more important than ever.

Investing in companies that have a lot of cash -- like Apple and CNOOC -- is extremely prudent in this environment, because companies need strong balance sheets to manage through uncertain economic times and take advantage of opportunities.

There are a number of metrics you can use to evaluate a company's liquidity. One of the easiest is the current ratio (current assets divided by current liabilities), which measures the company's ability to pay off its short-term obligations. A current ratio of 1 means the company has just enough short-term assets to pay off its short-term liabilities; higher ratios would mean that some current assets would be left over.

Another way to view a company's cash position is to look at cash per share. This shouldn't be looked at in isolation, because it's a dynamic number, and the company could be burning through the cash instead of generating more. To help with that, also look for trends in cash flow. For instance, is cash flow from operations accelerating over a multiyear time period? The answer should be "yes."

OK, so you now have a couple of tools to assess a company's liquidity. How do you go about finding the good companies? The Motley Fool's new CAPS screener is a handy-dandy tool to help you identify cash-rich companies.

To find some of the best liquid companies, I searched for companies that have:

  • CAPS' top rating of five stars.
  • A current ratio of 2 or greater.
  • Cash per share of $2 or greater.
  • Market caps of $100 million or greater.

Here’s what my screen popped out:

Company

Market Cap (in millions)

Net Cash Per Share*

Current Ratio

American Science & Engineering (Nasdaq: ASEI  )

$683.00

$6.21

4.5

Brookfield Infrastructure Partners (NYSE: BIP  )

$379.79

$10.1

43.2

China Digital TV Holdings (NYSE: STV  )

$337.80

$3.68

19.6

Core Laboratories (NYSE: CLB  )

$2,690.86

$5.97

3.6

Dawson Geophysical (Nasdaq: DWSN  )

$182.65

$4.71

5

Duoyuan Global Water (NYSE: DGW  )

$804.77

$6.27

9.7

Dynamic Materials (Nasdaq: BOOM  )

$260.55

$2.33

2.8

Source: Motley Fool CAPS. *Does not include short-term investments.

The CAPS screen turned out some great companies, but a company's liquidity is only part of your analysis. You also have to ask yourself whether these companies will remain cash-rich.

For example, let's look at China's oil and gas exploration and production goliath, CNOOC (mentioned above). The company made a fortune as oil prices rocketed to unforeseen levels, fueled by the idea that demand was only going to climb as emerging markets built out their infrastructure. Then came a global slowdown, and oil prices dropped like a rock. Since then, prices have come back, illustrating that we’re not stuck in that dreary position forever. China's in the midst of industrialization, and oil and energy will play a large part in that over the long run.

The same argument for sustained liquidity is true with Apple. Customers are suffering now, and Apple is a consumer-facing company. However, the maker of iPods and iPhones has shown remarkable strength in the midst of this downturn. If this technological whiz kid can continue churning out popular and innovative products, cash should continue piling into its coffers.

When screening for stocks with strong cash positions, always remember the words of Jerry Maguire client Rod Tidwell: "Show me the money!"

To learn more about these companies or other investment ideas, check out what our 145,000 CAPS community members have to say. Your opinions are more than welcome!

Related Foolishness:

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. American Science & Engineering and China Digital TV are Rule Breakers recommendations.

Brookfield Infrastructure Partners is an Inside Value pick. Apple is a Stock Advisor pick. The Motley Fool owns shares of Brookfield Infrastructure Partners and Dawson Geophysical, and has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2009, at 12:44 PM, hldboo wrote:

    My only comment is that it appears that companies with strong cash positions are also near the top alphabetically.

  • Report this Comment On December 30, 2009, at 12:47 PM, tkell31 wrote:

    Funny, I was just thinking the same thing. Either that or the screener had multiple pages.

  • Report this Comment On December 30, 2009, at 1:04 PM, shipolito wrote:

    Am I reading Google/Yahoo finance wrong? The market cap shown on this article for BIP does not match either of the market cap shown on Google/Yahoo.

    Perhaps the screener is broken.

  • Report this Comment On January 06, 2010, at 2:21 PM, dlcapo wrote:

    Aol and Yahoo both show around 380m market cap. which agrees with the article, plus or minus a few hundred thousand. What's the problem.

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