Back in the recessionary '70s, my rich uncle told me, "Kid, cash is king." When I asked what that meant, he held out a $100 bill and said, "You're the recession. I'm a company. Try and get this." Let's just say he had a tight grip.
Cash is still king. The benefits of owning companies that have tons of net cash can never be underestimated. Companies have fixed expenses, and if sales take a hit, that war chest keeps operations going. No operations, no company.
But I like companies that not only have lots of cash, but trade at "The Brown Discount," defined as a price-to-earnings ratio trading below its peers, or a current PEG ratio of under 0.5. The current PEG ratio is a guide that shows if a company seems to be presently undervalued with relation to its estimated one-year current growth rate (as opposed to the long-term growth rate used in the regular PEG ratio). Those growth trends may or may not pan out or remain sustainable. That's why I want it to be really low.
Panera Bread Co.
Even better, these are two solid companies in very different sectors. Hurrah for diversification!
By the way, one month later my uncle had forgotten he'd relayed his advice to me. When he pulled out his $100 bill, I snatched at it so quickly, it tore in half. I ran off with the larger piece. That was the last lesson in cash-king finance I ever got from him.
Matthew Brown does not hold any of the stocks mentioned here, but still has his half of that ripped $100 bill.
Chipotle Mexican Grill is a Motley Fool Rule Breakers recommendation. Chipotle Mexican Grill is a Motley Fool Hidden Gems choice. The Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.