Kapitall reported cash-rich companies had a worse performance than those that paid out dividends in 2011, but some investors are unsure if that trend will continue.
The reasons for hoarding cash -- an uncertain future agitated by troubles in Europe, China, and the U.S. -- have not disappeared. If economic conditions worsen, then it's possible this strategy will benefit companies in the long run.
With this in mind we created a universe of companies with large cash cushions. So large, in fact, that the companies in question could run operations (on average) for more than four quarters without earning a single penny in profit.
… [A] company's cash cushion speaks volumes about its ability to weather tougher economic times, at least in the near term. Large cash holdings also suggest a company has the ability to buy up new companies and expand operations.
To refine the quality of our list we searched for the stocks with an increase of short covering. Short-sellers are investors that benefit from falling stock prices. If they are covering their short positions on these cash-rich names it's a signal that they are becoming less pessimistic about their short-term performance.
Short-sellers seem to think these cash-rich companies have more upside than downside -- do you agree? (Click here to access free, interactive tools to analyze these ideas.)
1. GAIN Capital Holdings
3. Alimera Sciences
4. TowerStream Corp.
5. Geron Corp.
6. Keynote Systems
7. Delcath Systems
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. List compiled by Eben Esterhuizen, CFA.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance, accounting data sourced from Google Finance.
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