Cash is one of my favorite assets. Having stacks of cash on hand gives me a nice cozy feeling. Having cash in hand and more coming in the door every day means I don’t have to worry as much about day-to-day expenses, and I can focus on looking for way to put my cash to work at high returns.
The same is true for companies. Companies that have a lot of cash on hand and are earning high returns on invested capital don’t have to be as concerned about the overall economy and how the stock market is dong at a given moment in time.
Instead, they can focus on plans to invest in new opportunities to grow the company or reward shareholders with things like dividends and share buybacks.
Long-term investors with a portfolio full of cash-rich cash generators should be well rewarded regardless of short-term market moves. In this kind of environment especially, you can’t overvalue that kind of safety.
Cash-Rich Stocks to Buy: Tessera Technologies (TSRA)
Tessera Technologies (TSRA) is a great example of a cash-rich cash generator.
The company licenses technologies and intellectual properties that have applications in mobile computing and communications, 3DIC technologies and memory and data storage. Tessera’s mobile imaging technology includes programs that allows smartphone uses to take better photographs with things like red-eye reduction, blink sensors, and face beautification.
The company has plenty of cash on hand, with net cash on the balance sheet equal to about 25% of the total market capitalization. TSRA has earned an average of about 34% on invested capital, so the cash just keeps flooding in as smartphone photography becomes a staple.
Management at Tessera has been using the cash to pay dividends, buy back stock and even buy companies that can drive future growth. This smart use of cash should drive high returns for many years and drive the TSRA stock price higher regardless of market fluctuations.
Cash-Rich Stocks to Buy: RPX Corporation (RPXC)
RPX Corporation (RPXC) offers what it calls patent risk solutions. RPX helps companies protect their patent portfolio with services like rational alternative to traditional litigation strategy for our clients, offering defensive buying, acquisition syndication, patent intelligence and advisory services.
The company says that the market for this services is underserved and that legal expenses have cost industry over $12 billion per year. Customers seem to agree, as RPX has a 90% retention renewal rate for its subscription-based patent protection products. RPX is earning a return on invested capital of over 30%, so the business is very profitable and generating a lot of cash.
The cash is piling up, as net cash is equal to about one-third of the total market capitalization. Management is using the cash to defensively buy patents and expand their investment portfolio, increase the patent insurance business and grow the business at a high rate over time.
Cash-Rich Stocks to Buy: Kulicke and Soffa Industries (KLIC)
Kulicke and Soffa Industries (KLIC) makes capital equipment and expendable tools to assemble semiconductor devices.
Products include things like integrated circuits, discrete devices, light-emitting diodes (LED), and power modules. KLIC also sells a line of ball bonders to connect very fine wires made of gold or copper between the bond pads of the semiconductor devices or dies, and the leads on its package have been growing at a strong pace this year.
The company is awash in cash, as net cash is equal to almost 75% of total market capitalization,. KLIC has earned a return on invested capital of 22% annually for the past decade. Management is using the cash to buy back stock, repurchasing 3.8 million shares, or about 5% of the company, in the second quarter.
Patient investors should be very well rewarded by the constant repurchases and KLIC’s long-term growth.