Cash Kings: 10 Companies Positioned to Gain Market Share, Reward Shareholders

by: MarketGrader

Amid an uncertain economic climate, investors should be looking not only for companies that are able to survive an economic downturn but also for those that might actually benefit from taking market share from weaker rivals that may be too busy defending their turf or simply focused on surviving a weak economy.

A good place to find these companies is MarketGrader’s "Cash Kings" idea list, one of 22 unique lists published daily for our subscribers. In order to qualify as a "Cash King", a company must have an overall ‘Buy’ rating from MarketGrader, a Cash Flow overall grade of at least A- and a minimum of $1 billion in cash on hand.

Our current list, available for free to all visitors as the Idea List of the Week, includes a total of 113 companies. 22 of them have at least $10 billion in cash on hand and 36 have a market cap of at least $50 billion; this is clearly a list of mostly large cap companies, with the smallest one, BBVA Banco Frances SA Buenos Aires (NYSE:BFR), having a capitalization of $1.8 billion. And very telling perhaps of investor preference for safer, solid companies amid the recent market downturn, only five of the companies on the list have a negative sentiment rating, while 30 have a neutral sentiment rating and 78 have a positive sentiment rating.

The following are a few of the highlights of our top ten "Cash Kings":

1. Intel Corp (NASD: INTC)

Overall Grade: 91.8

Intel, which was recently the highest overall graded company in all of MarketGrader, has only $2.14 billion in total debt, compared to $11.90 billion in cash on hand. The company received an A+ grade in 4 of the 6 indicators that make up our Cash Flow category: EBITDA Margin, Debt/Cash Flow Ratio, Interest Coverage Capacity and Economic Value. Intel has an overall grade of 91.8 (out of 100).

2. Cliff’s Natural Resources Inc. (NYSE: CLF)

Overall Grade: 89.0

Cliff’s Natural Resources, with an overall grade of 89.0, saw its cash flow grow considerably in its latest quarter to $106.90 million, a 60.27% increase from $66.70 million reported in the year earlier period. The company’s liquidity is not only remarkable but the current amount of debt it carries relative to the cash flow it generates from its operations is even lower now than it was a year ago. It received an A+ grade in 3 of our 6 Cash Flow indicators: Cash Flow Growth, Debt/Cash Flow Ratio and Retention Rate.

3. Apple Inc. (NASD: AAPL)

Overall Grade: 88.0

Apple is truly a cash machine, generating almost $6 billion in free cash flow per quarter and more than $23 billion over the last 12 months. Its cash flow grew considerably in its latest quarter to $6.22 billion, a 166.91% increase from $2.33 billion reported in the year earlier period. When compared to the 96.25% increase in cash flow in the last twelve months it seems like the rate of growth is accelerating, which could have a very positive impact on earnings growth in coming quarters. The company clearly has very strong liquidity having no debt to finance and $29.23 billion in cash on hand. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. Apple received an A+ in 5 of 6 Cash Flow indicators: Cash Flow Growth, Debt/Cash Flow Ratio, Interest Covering Capacity, Economic Value, and Retention Rate. It has an overall grade of 88.0.

4. Research In Motion LTD. (NASD: RIMM)

Overall Grade: 87.6

Despite yesterday's poor earnings report and even worse guidance, RIMM continues to generate cash at a fast pace; how this translates into future results given their ongoing woes in rolling out new products and stemming the ongoing loss of market share to Apple and Android powered phones is another story and outside the scope of our current analysis. To the point, through their first quarter (ended in February), RIMM generated almost $3 billion in free cash flow and held $2.1 billion in cash on hand. Its shares, which have lost half of their value so far this year (not including today's decline of more than 20%) trade at only 4.6 times cash flow per share of $7.65 (if the stock closes where it is trading mid-morning the shares will trade at 3.6 times cash flow per share).

5. Vale SA (NYSE: VALE)

Overall Grade: 87.2

Vale generated $6.7 billion in cash flow and $3.7 billion in free cash flow during the first quarter. 12-month trailing free cash flow was $11.3 billion while cash on hand stands at $12.3 billion. The company's return on invested capital during the last year was 28% and its economic value added, after accounting for the after-tax cost of both equity and debt, was 20%.

6. Microsoft (NASD: MSFT)

Overall Grade: 87.1

Microsoft's cash pile is well documented; what it can do with it in the future to improve its standing among investors is another story. The company generated almost $20 billion in free cash flow during the last 12 months and is sitting on $50 billion of cash and short term securities (enough to buy RIMM three times at today's price and still be left with $7 billion in cash).

7. Freeport-McMoRan Copper & Gold (NYSE: FCX)

Overall Grade: 86.0

A perennial member of several MarketGrader Indexes as well as the Barron's 400 Index, FCX generated $4 billion in free cash flow during the last 12 months, $1.6 of which it generated last quarter. The company's TTM return on equity was a remarkable 35% and its return on invested capital was 50%.

8. Altera Corp (NASD: ALTR)

Overall Grade: 86.0

Altera, which manufactures semiconductor integrated circuits for the telecommunications, indsutrial, military, automobile, networking and computer manufacturing industries, generated $933 million in free cash flow during the last 12 months. The company has $3.1 billion in cash on hand.

9. Lam Research Corp (NASD: LRCX)

Overall Grade: 84.9

LRCX, another semiconductor equipment manufacturer, is generating over $200 million in free cash flow per quarter (its market cap is only $5.4 billion). Its cash on hand currently stands at $1.3 billion, almost one quarter of its capitalization.

10. Annaly Capital Management (NYSE: NLY)

Overall Grade: 84.4

NLY is the second highest grader company by MarketGrader among the 1,147 financials followed by our system. The company's operating margin on a 12-month trailing basis is 94% and its net profit margin in the same period is 54%. It achieves this with a very low cost of capital (4% cost of equity and 0.05% cost of debt on an after-tax basis), on which it generates returns of almost 22% per year. NLY generated $12.4 billion in free cash flow during the last 12 months, $4.5 billion of which it generated last quarter. The stock, which trades at 7.6 times 12-month trailing earnings, is yielding 13.5%.

For the complete list of all 113 “Cash Kings” and their fundamental analysis, please click here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.