Cash Rich Companies to Watch in 2011
p>Cash is king at companies in 2011.
Fear of the economic and regulatory unknown has caused many companies to hoard money. That despite the fact that many Americans, including President Obama, would prefer to see CEOs put some of those dollars into hiring unemployed workers.
Cash-rich companies are in excellent financial position to increase their dividends, buy back their own shares, make prudent acquisitions of weaker competitors, and invest in research and development. Their stock could also be worth more than the price indicates because so much money is stashed in the company safe.
Such firms are the most likely to emerge from a down economy in excellent financial shape, ready to take off in better times. This makes them logical possibilities for post-recession investing.
"There is a record level of close to
Due to increased government regulations, financial services firms have higher reserve requirements than in the past. Yet holding cash for a rainy day has extended to virtually all types of industries. Hogan considers this overkill when viewed in light of improving estimates for the gross domestic product and corporate earnings. Overall circumstances are simply better, he is convinced.
"As a shareholder you're just as happy seeing dividends raised, share buybacks or acquisitions," said Hogan. "But altruistically, you'd also like to see the money being used in job creation, factory building and expansion of businesses so more manufacturing is done here instead of overseas."
Cash-rich companies are best suited for investors who don't like surprises and who prefer safety cushions in their financial vehicles.
Experts consulted for this article suggested taking a closer look at these famous "big dogs" in cash:
The software giant that generates more than
The world's largest athletic footwear and apparel maker, enjoys an enormous cash cushion and is committed to returning cash to its shareholders. That strategy includes
McDonald's Corp (MCD)
The fast-food powerhouse, has a massive cash flow and substantial cash cushion because it receives franchisee royalties and rent payments even when the economy is doing poorly. It boasts a three-decade history of paying cash dividends and repurchasing shares.
"Put yourself in the place of the CEO, whose mandate it is to protect shareholders," said
Not that it is always a good thing. Having a lot of cash can sometimes mean that money isn't being spent where it should be to improve the overall business. We are exiting the period in which cost-cutting was revered for cost-cutting's sake alone. The reality is that firms can't really grow by cutting back.
"Look at where a company's cash is coming from -- whether it is from sales and it is just booking the cash, or whether it is selling assets or closing plants," added Wright. "You don't want to see all that cash coming from shrinking its business."
As far as companies worth watching, Hogan notes previously mentioned Microsoft, along with
Google (GOOG) and
Boeing (BA). He is surprised that cash-rich
IBM (IBM) and
Honeywell (HON) are actually issuing debt even though they have such large amounts of cash on their books. Wright also points to Nike and
"A company having a large cash reserve may mean it is a mature company with growth prospects that aren't as good as they once were," cautioned
Goldman points to Microsoft,
Apple Inc. (AAPL) and
Caterpillar Inc. (CAT) as notable examples of cash-rich companies.
"Companies will definitely be more confident in 2011 than they were last summer, which had all those euro troubles," concluded Goldman. "However, they still remember what went on in the financial crisis and continue to allocate cash to the unforeseen economic and systematic risks that these days seem to be more prevalent than ever before."
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