3 More Kings of Cash

Welcome back to the world of the Cash Kings, where we highlight businesses that generate a healthy dose of free cash flow. Why is cash flow so important? Because it gives management the opportunity to boost shareholder value by:

1. Paying dynasty-building dividends.
2. Buying back shares at attractive prices.
3. Growing the business organically, without having to borrow money or sell shares.

A Fool's guide to free cash
Investing, after all, is about putting money up front today in order 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 health and profitability (or lack thereof).

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

Unlike Gateway (NYSE:GTW) -- a cash-burning company that CAPS overwhelmingly dislikes -- these are businesses with free cash flow-to-sales margins (also known as the Cash King Margin) of 15% or greater, and a general bullish regard from our community.

Sound the trumpets! Here's another trio of Cash Kings from CAPS:

As always, don't consider these stocks as formal picks, but rather suggestions worth further investigation. After all, due diligence is the Fool's way to riches.

Just for starters, here's a quick summary of these cash-throwing kings, and what some of their loyal CAPS followers feel about them.

Sultan of soy
With an impressive free cash flow-to-sales margin of 25%, American Oriental Bioengineering takes the honors as this week's most prolific cash king.

As one of the leading providers of Traditional Chinese Medicine (TCM) in the world, AOB has the strong portfolio of state-approved plant-based medicines (including popular ginseng and soybean peptide products), a rock-solid balance sheet, and exposure to the massive Chinese population (where its products are naturally in high demand) to keep its coffers stuffed with cash.

Despite the stock's 78% increase over the last year, AOB currently trades at a P/E of 19. For a company expected to grow compound earnings at a 50% clip over the next five years, that's a pretty interesting offer.

CAPS All-Star MArgersinger plants this healthily balanced pitch:

This is an intriguing and somewhat speculative play in organic pharmaceuticals in China. That being said, the company's products are being readily accepted in the marketplace. With the opportunity to expand its products outside of China, AOB's growth prospects look tremendous. A rocky, risky potential outperform here.

Roll out the blue carpet
The next monarch on our list is Blue Coat Systems, which IDC has ranked as the top secure content and application delivery firm in the world. According to our CAPS community, that kind of leadership position makes BCSI a great play on ever-increasing web usage.

Despite posting lumpy earnings over the last couple of years, Blue Coat has leveraged its highly regarded IT solutions -- used by a wide variety of customers like IBM (NYSE:IBM), Conoco Phillips, and even the Department of Homeland Security -- to generate healthy cash flows. It's also worth noting that all seven Wall Street firms -- whose picks we track on CAPS -- are bullish on Blue Coat.

As my Foolish colleague Rich Duprey writes, BCSI isn't exactly cheap right now, but it's certainly one to keep on the watch list.

CAPS All-Star rbcaps chimes in:

Besides security, Blue Coat is into WAN Optimization. Some of their competitors are Riverbed Technology (NASDAQ:RVBD), F5 Networks (NASDAQ:FFIV), and Packeteer.... Wan Optimization is a hot market. People are pushing more and more across networks and over the Internet, which creates the demand for this.

Emperor Aladdin
Our last free cash flow ruler this week is Aladdin Knowledge Systems. According to Frost & Sullivan, it's the global leader in software digital rights management (DRM). The company's HASP family of DRM products -- which allow software publishers to increase revenues and reduce losses from piracy -- protect more than $500 billion worth of software applications today.

Additionally, Aladdin is the world leader in token authentication, with thousands of organizations -- including Unisys, NCI, and several U.S. colleges -- utilizing its eToken products for cost-effective password solutions.

The stock is up 30% in the last year, but Aladdin might be worth considering, should a pullback occur. CAPS All-Star and Foolish colleague TMFMmbop, for example, showed us just how to do it back in January:

... given the fourth quarter results, the current sell-off, ALDN's international niche, and the growing demand for computer security products, I think ALDN could very well do better than analyst expectations. Meanwhile, the company continues to add to its pile of cash.

The Foolish bottom line
Free cash flow-generating companies like American Oriental Bioengineering, Blue Coat Systems, and Aladdin Knowledge Systems are always among my top candidates for further research. Our Motley Fool CAPS intelligence database is a great place to look for your own Cash Kings, or read how your fellow Fools feel about thousands of different stocks.

Click here to join the forward-thinking CAPS community free of charge.

Be sure to join us next time, when I'll feature three more cash kings from CAPS. Until then, may your cash flow reign supreme.