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 that 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 bargain-basement 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:

Data from Motley Fool CAPS and Yahoo! Finance, as of March 26, 2009. 

Smoking out the big returns
I'm a huge fan of tobacco giants Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM). All moral reservations aside, simple, time-tested, cash cow companies do it for me.

Beyond the "Big Cig" names, investors might want to check out smaller rival Lorillard. The maker of Newport and Kent cigarettes, among others -- by golly, does it know how to suck some cash out of 'em.

Shares currently trade at just under 11 times forward earnings and come with a fat 5.7% dividend. While that valuation isn't spectacularly cheap -- it's about on par with Altria and Philip Morris Intentional -- Lorillard is set apart by a completely debt-free and cash-rich balance sheet. That's an asset worth its weight in gold these days, and it gives this company tremendous latitude in a market where so many are struggling. Buy back shares? Increase the dividend? Acquire a rival? You name it, Lorillard can do it. Being cash-rich in a time of crisis is a beautiful thing.

CAPS member MagicDilligence recently gave a nice rundown of the power of Lorillard's strength, writing:

Lorillard's golden asset is the Newport menthol cigarette brand. Newport has a market share of close to 35% in the menthol cigarette category … The brand has been steadily taking market share from competitors like Altria's Marlboro Menthol, and Reynold's Kool brand. In fact, Reynolds has recently scaled back it's promotional support behind Kool, presenting even less of a barrier to continued market share gains. Because of this brand strength, Lorillard can charge a premium for it's product, earning higher margins than competitors and protecting those margins through brand loyalty. The company's operating margin is a sky high 32%. The fact that Lorillard has been able to maintain those attractive margins against competitors hungry for a piece of that profit pie is a testament to the durability of competitive advantage here.

The whole "one-trick-pony" thing might make investors nervous, but there's a tremendous difference between a one-hit wonder and a single-product sensation. As an industry leader in a notoriously brand-sensitive industry, Lorillard has everything it takes to produce solid, dependable, long-term results.

Your turn to chime in
What do you think about Lorillard? Is this a screaming value, or is tobacco undergoing a long, slow death? Make your voice heard. More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out. It's 100% free to participate.

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