Cash Rich Stock Picks

The tendency for major corporations to stockpile cash after the financial crisis seemed like a reasonable strategy, but according to recent data reported by FactSet, the trend hasn’t changed much. In his latest article for TheStreet, Validea CEO John Reese outlines some possible explanations and describes how our guru-based investment strategies (particularly that of Warren Buffett) evaluate a company’s use of their cash.

Reese identifies the following high-scoring picks:

  • NetEase (NTES) is a tech company that operates an interactive online community in China. Management’s use of retained earnings has produced a return of 18.7%, and the company’s debt free balance sheet and free cash flow-per-share of $6.33 add appeal.
  • Polaris Industries (PII)designs, engineers and manufactures off-road vehicles including all-terrain and side-by-side vehicles for recreational and utility use. The company’s consistently high return on total capital has averaged 33% over the past ten years, and earnings-per-share has grown (on average) by 15.7% during that period.
  • TJX Companies (TJX), a global off-price apparel and home fashions retailer, boasts a 10-year average return on total capital of 33.6%, and management’s use of retained earnings has produced a return of 16%. TJX also earns high marks due to its solid, stable and expanding earnings-per-share and modest debt levels.