The Richest Companies for Your Portfolio

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

Though banks have slowed down on tightening lending, they haven't loosened requirements, either. As such, credit remains tight, particularly for small firms. Unemployment is expected to remain elevated for an extended period of time, and 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, though, because it's a dynamic number, and the company could be burning through the cash instead of generating more. Look for trends in cash flow alongside it. 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 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 came up with:

Company

Market Cap (in millions)

Cash Per Share*

Current Ratio

American Science & Engineering (Nasdaq: ASEI  )

$680

$5.38

5.0

Brookfield Infrastructure (NYSE: BIP  )

$392

$3.06

12.0

Dawson Geophysical (Nasdaq: DWSN  )

$209

$4.83

5.6

II-VI

$862

$3.79

7.5

Infosys Technologies (Nasdaq: INFY  )

$32,230

$3.46

5.9

J &J Snack Foods (Nasdaq: JJSF  )

$808

$3.31

3.1

L.B. Foster (Nasdaq: FSTR  )

$316

$12.00

4.2

Mindray Medical International

$3,990

$2.16

2.0

Morningstar (Nasdaq: MORN  )

$2,170

$3.90

2.4

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 take a closer look at China's oil and gas exploration and production goliath, CNOOC. The company made a fortune as oil prices rocketed to previously unforeseen levels, fueled by the idea that demand would only climb as emerging markets built out their infrastructure. The company piled up the cash as the good times rolled. 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. Consumers are suffering now, and Apple is a consumer-facing company. However, the maker of iPods and iPhones showed remarkable strength in the midst of the 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 150,000 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. You can follow her on Twitter. Brookfield Infrastructure and Dawson Geophysical are Motley Fool Hidden Gems picks. Brookfield is also both an Inside Value and a Global Gains recommendation (and CNOOC is also a choice of the latter). American Science and Mindray Medical are Rule Breakers selections. Morningstar and Apple are Stock Advisor picks. The Fool owns shares of Brookfield and Morningstar. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On February 25, 2010, at 6:04 PM, langco1 wrote:

    with the depression in the US now out of control and with no one running the country here are a few of the name bankruptcys for 2010...GM!chrysler,aig,hertz,sirius,riteaid,etrade,aol,moody's,blockbuster,street.com,sears,and palm...just a few!!

  • Report this Comment On March 04, 2010, at 5:13 PM, halfhedge wrote:

    I do not understand the relevance of price per share unless you also mention a current share price. After all a cash value per share of, say 1$, has quite a different for a share trading at 2$ than for one trading at $200.

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