Companies With Cash Are in Control

• ByTim Melvin, RealMoney.com Contributor
• On 9:15 am EST, Wednesday December 3, 2008

The years leading up to this current bear market were incredibly prosperous ones -- not just in the U.S., but around the globe. The companies that managed their balance sheets and grew intelligently will be in the driver's seat when this mess comes to an end. They can buy competitors, grow earnings and purchase new technologies and product lines.

In yesterday's column, I talked about cash-rich companies. Those of us sequestered here on Siesta Key spent a good amount of time discussing who had the money and what they might buy. I ran out of space yesterday so I want to follow up with some of my favorite cash-rich companies today.

EMC is easily one of my favorites. The company misses the first cut on many of my stock screens because it has some $3.4 billion of debt on the balance sheet. However, a deeper look at EMC shows cash far in excess of debt. The total cash stockpile of $ 5.8 billion gives EMC net cash of $2.4 billion, or more than 10% of its market cap.

Revenues have been growing at a double-digit clip even in the difficult economy and should be over $15 billion this year. Earnings are expected to fall a little shy of the 2007 mark but are still healthy at an anticipated 77 cents a share. The company should grow earnings and revenues in the low teens annually for the next several years. Data storage is going to continue to be an expanding business and the security side of the industry will be explosive when the recession ends.

EMC also owns 85% of fast-growing virtualization company VMware . That stake is worth more than 25% of EMC's share price. Net of VMware and cash, you are paying a bargain price for EMC at these levels. It has been attracting some attention form noted value and activist investors including David Einhorn at Greenlight Capital and Bill Ackman at Pershing Square Capital.

The company recently spent some of its cash on two small acquisitions. The combination of the two -- to be called Decho -- will specialize in personal online security and help users maintain and protect what EMC calls their digital echo: all information and personal documents stored on the Web. The marketplace for storage and protections services is expected to grow at better than 60% annually for many years to come and could become a significant source of profits for EMC.

EMC can use its cash to continue buying new businesses and technology, but more important, the cash offers resources to stay upright while the economy falters. Its storage business and cash pile could make the company a takeover candidate itself. EMC would be a good fit for several companies, including IBM and Hewlett-Packard . The combination of VMware and net cash would finance about 40% of the stock price.

Some other names came up on the cash screens that are worth mentioning. While the company has had a tough time this year and has fallen sharply, Motorola still has more than $7 billion of cash. The stock currently sells just above its cash per share level. It is no secret that the mobile devices and handset businesses have been terrible for years; plans to spin off some of these businesses have been delayed by the weak stock market. It is now expected that the split of the company will occur in the second half of 2009.

This is one of the premier technology companies in the world and it is selling at cigar-butt prices as a result of its ongoing struggles. There have been management changes, and several activist investors are involved in the stock. The company may never regain its status in the entirety, but it is worth more than net cash in my opinion. It also pays to wait with this stock as Motorola currently yields better than 4.5%.

Foster Wheeler has risen from its October lows but still trades well below its 52-week highs. I have talked a lot abut the opportunities for infrastructure companies, and this one is well positioned to benefit with over $1 billion in cash and very little debt. KBR is another beneficiary of the planed Keynesian economic stimulus and has over $1 billion to prop up the business and expand in the coming industry boom times.

Cash is king -- a large amount of cash on the books gives these companies the staying power to weather the current economic downturn and emerge as winners when it's over. Take advantage of selloffs to build positions in the cash companies and reap the long-term rewards.

Buzz up!