3 More Kings of Cash

A few years ago, I oversaw the acquisition and daily operation of an apartment complex in southern Ontario. My objectives consisted of positioning the business toward prolonged growth and profitability, while maintaining a conservative financial position as well. OK, fine. I was basically a landlord who hunted down rent checks every month! Not so glamorous after all.

Although I had an accountant, I really wasn't concerned about how impressive my GAAP earnings looked. At the end of every month, all I really cared about was having the one thing in my pocket that I actually needed to keep the business running and growing -- cash. So why would it be that much different with stocks?

A Fool's guide to free cash
Investing, after all, is about putting money up front today to get more of it in return tomorrow. Here at the Fool, we're firm believers that free cash flow, as opposed to traditional accounting earnings, is the best gauge of a firm's profitability (or lack thereof). You can learn more about the importance of free cash flow here.

So with those cash flow lessons deeply engrained in your Foolish subconscious -- or maybe just bookmarked as a "favorites" page -- I'll highlight three cash-cow favorites of our Motley Fool CAPS community.

I'll simply screen for companies with free cash flow-to-sales margins above 10% (also known as the Cash King Margin) that our community is overwhelmingly bullish about as well. The Cash King Margin is a good way to account for size differences among companies, rather than just using an absolute level of free cash flow.

Cash rules everything around them
Unlike companies such as General Motors (NYSE: GM  ) , Napster (Nasdaq: NAPS  ) , and Ballard Power Systems (Nasdaq: BLDP  ) that struggle to keep the cash from gushing out of its corporate windows, these companies have it practically flooding the mail rooms.

So, let's not waste another second. Sound the trumpets! Here's this week's trio of Cash Kings from CAPS:

Company

Cash King Margin
(TTM)

CAPS
Bulls

CAPS
Bears

Ctrip.com International (Nasdaq: CTRP  )

38.27%

1849

74

Akamai Technologies (Nasdaq: AKAM  )

24.24 %

818

74

Electronic Arts (Nasdaq: ERTS  )

13.45%

701

61



As always, don't consider these stocks as formal picks but rather as suggestions worth further investigation.

Aside from free cash flow, there's obviously a ton of other things investors need to take into consideration, from the character of its management to the valuation of its shares. After all, due diligence is the Fool's way to riches.

But just for starters, here's a quick summary of the stories behind these cash-throwing stocks and what some of our CAPS members are saying.

Ctrip on a power trip
With a free cash flow-to-sales margin of nearly 40%, Ctrip.com takes the honors as this week's most prolific cash king. The Shanghai-based company is the leading provider of travel accommodations in China, not to mention a three-time selection of our Motley Fool Hidden Gems service. The stock is up over 100% since it was first recommended by co-founding Fool, Tom Gardner, and even our CAPS community can't seem to get enough of the Chinese baron of booking flights.

CAPS All-Star Hukphinn states a simple but persuasive investment case here:

CTRP is a great way to play the China card. Censorship is not an issue for this particular Internet product, the Chinese economy and middle class are both strong and growing, the Beijing Olympic games are around the corner, and CTRP is the undisputed market leader. Definitely not risk-free, but high reward is more likely than not.

King Akamai's crown
Akamai Technologies is another cash king that has performed majestically over the past year, up nearly 200% year to date and 349% since it was formally recommended by our Motley Fool Rule Breakers service (see, bowing to cash kings does pay off).

The company's patented EdgePlatform technology, which improves and accelerates the delivery of content and business processes over the Internet, is well-trumpeted by adoring Akamai bulls in the CAPS community. Another CAPS All-Star, TMFBreakerBeth, sums up the general sentiment regarding Akamai:

Akamai has built an amazing business that's not going away any time soon. It's positioned to grow as the delivery of content over the Internet grows & Nice position to be in, eh?

Emperor of the arts
Our last free cash flow king this week is Electronic Arts, the undisputed ruler of video-game software and Motley FoolStock Advisor selection (I told you we're Fools for free cash). As the next generation of game consoles continue their crusade to capture the hearts, imaginations, and wallets of young and old alike, the owner of blockbuster franchises like Madden NFL, Tiger Woods golf, and NBA Live is primed for the profits.

One CAPS player capitalgs has her eyes set on this year's holiday season and beyond:

While I believe EA will do well going into the XMAS season, their hold on the Madden franchise and the Lord of the Rings games gives them an exclusive on an already "hungry" fan base well into the future. Gaming is on the rise, and they are at the forefront & what's not to like?

The Foolish bottom line
Free cash flow-generating companies like Ctrip.com, Akamai Technologies, and Electronic Arts are always among my top candidates to research further. Our Motley Fool CAPS intelligence database is a great place to come up with new investment ideas, read what fellow Fools think, and even voice your own opinion about your favorite stocks. Click here to join the forward-thinking CAPS community free of charge.

That's all for this week, Fools! Be sure to join us next week, when I'll feature three more cash kings from CAPS. Until then, may your free cash flow reign with a free fist.

Ctrip.com is a Motley Fool Hidden Gems recommendation. Akamai Technologies is a Motley Fool Rule Breakers pick. Electronic Arts is a Motley Fool Stock Advisor selection. Click here to test-drive any of our market-ruling services for a month.

Foolish contributor Brian Pacampara gives free cash away at the poker table and holds no position in any of the companies mentioned. The Fool's disclosure policy always rules Fooldom.


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