Please ensure Javascript is enabled for purposes of website accessibility

5 Stocks for Fast Cash

By Rich Duprey – Updated Apr 5, 2017 at 5:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These semiconductor product makers compute numerous ways to find the cash.

We've all heard the mantra "cash is king." But a fistful of dollars today deserves the royal treatment more than a wad of cash down the road. We want our companies turning their products into cash -- fast!

The cash conversion cycle
Enter the cash conversion cycle. It tells us how quickly a company turns cash invested in inventory into cash in the bank after collecting credit sales from customers and paying off its suppliers. The faster a company can turn over its inventory, the more efficiently it's managing its assets. There are three components of the cycle, and here's how they operate:

  • Days Inventory Outstanding (DIO)
    Inventory sitting on store shelves or in stockrooms is not doing the company, or the investor, any good. The number of days the inventory sits there measures how quickly management can get those Speedos off the racks and onto the beaches of Malibu. Obviously, lower numbers are better.
    DIO = (average inventory / annual cost of goods sold) * 365 days
  • Days Sales Outstanding (DSO)
    Outstanding sales are those the company hasn't yet been paid for; they're languishing in accounts receivable. We want our companies to not only make quick sales, but also get paid for them right away. The faster, the better.
    DSO = (average accounts receivable / annual sales) * 365 days
  • Days Payable Outstanding (DPO)
    While we want customers to pay us quickly, we want to take our sweet time paying our bills. By paying suppliers slowly, cash is available to spend on things it needs, like inventory, so we want this number to be higher.
    DPO = (average accounts payable / annual cost of goods sold) * 365 days

Putting it all together
With the three pieces of the puzzle calculated, we can figure out how long a company is taking to get paid for the products its customers are buying from inventory, minus the number of days it takes it to pay its suppliers. The cash conversion cycle, or CCC, equals DIO + DSO - DPO. The lower the result, the better.

Company

DIO

+

DSO

-

DPO

=

CCC

CAPS Rating (out of 5)

STMicroelectronics (NYSE:STM)

58.4

+

83.8

-

72.7

=

69.5

**

Fairchild Semiconductor (NYSE:FCS)

73.5

+

37.3

-

38.3

=

72.5

**

Texas Instruments (NYSE:TXN)

75.0

+

50.5

-

37.8

=

87.7

****

National Semiconductor (NYSE:NSM)

90.6

+

36.4

-

36.8

=

90.2

***

Analog Devices (NYSE:ADI)

125.7

+

49.7

-

51.5

=

123.9

****

Source: CapitalIQ, a division of Standard & Poor's.

Each week, we look for the top companies in different industries that make fast cash, and it seems the 65,000 participants in the Motley Fool CAPS investor intelligence database hasn't rung up much in the way of backing, as almost all rate an average three stars or less.

Not every company that makes fast cash will excel. We generally only want those firms that the CAPS community considers the best. Four- and five-star stocks are the ones the vast majority of CAPS investors believe will outperform the S&P 500. So we'll calculate the speediest of the four-star bunch and take a closer look at Texas Instruments, which is able to turn silicon into cash only about three weeks slower than the zippy STMicroelectronics.

Of course this isn't a list of stocks to buy or sell -- just a jumping-off point for further research.

The not-so-lonely star
Even as it generates a prodigious amount of free cash flow, Texas Instruments has sought to enhance shareholder value by going big with aggressive share repurchase programs. If it continues to remain on target in the mobile handset market, companies like Nokia (NYSE:NOK), Research in Motion (NASDAQ:RIMM), and Palm will continue to rely upon the company's OMAP processor applications.

More than 900 investors cast their votes for Texas Instruments. 93% believe it will outperform the market, while 92% of All-Stars -- CAPS investors who consistently outperform their peers over time -- agree.

Top-rated All-Star timb06 points to a manufacturing model that enables TI to seize opportunities.

TXN has leadership positions in a number of segments that are growing faster compared to the overall semiconductor industry. In addition, TXN utilizes a flexible manufacturing model which enables the company to adjust its business quickly to preserve profit margins during intense pricing environments.

Go green!
So which company will continue to compute the cash? Tell us your picks at Motley Fool CAPS as you work with thousands of your fellow Foolish investors to uncover the best stocks and convert your money into cash profits. Best of all, it's absolutely free -- get started today!

Palm is a recommendation of Motley Fool Stock Advisor. You don't need a smartphone to get a 30-day risk-free trial to the service beating the market by 45 percentage points. Just click here!

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Texas Instruments Incorporated Stock Quote
Texas Instruments Incorporated
TXN
$154.78 (-2.32%) $-3.67
Nokia Corporation Stock Quote
Nokia Corporation
NOK
$4.27 (-0.23%) $0.01
BlackBerry Stock Quote
BlackBerry
BB
$4.70 (-2.08%) $0.10
STMicroelectronics N.V. Stock Quote
STMicroelectronics N.V.
STM
$30.94 (-1.47%) $0.46
Analog Devices, Inc. Stock Quote
Analog Devices, Inc.
ADI
$139.34 (-1.87%) $-2.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.