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Stockpickr: Top Stocks With Tons of Cash

James Altucher

Cash is king. There's nothing better than buying stocks that are generating a ton of cash every quarter, with cash flows increasing. When a company is generating reams of cash, it can use it to buy back stock, reduce debt, build business and so on.

At Stockpickr, we keep track of the top free cash flow-generating companies. We identify these companies, but we also specifically track the companies that have the best funds and investors as shareholders, giving us comfort that strong investors share our belief that the companies are going to continue their strong cash flows.

UTStarcom's(UTSI Quote) cash flows over the past 12 months were $436 million. The telecom-equipment company also has net cash on the books of about $250 million and an enterprise value of just $918 million. The fact it trades at such a small multiple over cash flows makes it an excellent takeover target. Last week, I mentioned that I suspect super hedge fund Renaissance Technologies is buying up stock in companies with a lot of cash in the bank and strong cash flows. In fact, Renaissance owns 6.5% of UTStarcom.

Why is UTStarcom so cheap? For one thing, its biggest driver of revenue, the broadband division, has experienced declining revenue. Margins were slimmer on this particular business, so company margins have gone up as a result. Additionally, the company has been caught up in the options-backdating scandal, and the CEO has received a Wells notice. Despite this, and despite the CEO's initially expressed desire to retire at the end of 2006, the board has asked him to stay on.

Where is the opportunity here? UTStarcom is the leader in IPTV -- TV broadcast across the Internet protocol. This may end up being the primary way consumers in both China and India view television. In fact, UTStarcom dominates 90% of the IPTV market in China, and this market is expected to go to 20 million consumers by 2010. Companies that possibly could acquire UTStarcom include Cisco(CSCO Quote) and Alcatel-Lucent(ALU Quote).

UTStarcom also appears on the list of top-ranking Value Line stocks that are trading for less than $10. In a blog post, Omid Malekan discusses how buying stocks on this value line list has historically resulted in superior returns.

Finally, hedge fund Tiger Global, a spinoff from Julian Robertson's Tiger Fund, also owns shares of UTStarcom.

CSK Auto(CAO Quote) is also on our top free cash flow list. The auto-parts retailer has had a tricky year, facing both the general problems in the auto industry and various accounting scandals -- a situation that it dealt with by restating financials (restated financials are due at the end of February) and firing all executives involved. Its stock plummeted during the year and has only just recovered.

Meanwhile, thanks to its acquisition in December 2005 of auto-parts retailer Murray's Discount Stores, the company reported a 16% year-over-year increase in sales in November. Cash flows over the past 12 months were $154 million. With a $1.1 billion enterprise value, the company is cheap enough to be considered a buyout candidate.

And we're not the only ones who believe so. Activist hedge fund Karsch Capital recently sent a letter to the company demanding it put itself up for sale. Check out the rest of Karsch's holdings, including value plays such as Wesco Financial(WSC Quote), as well as tech/value plays such as Microsoft(MSFT Quote) and Applied Materials(AMAT Quote).

Additionally, Harvard, which has the best-performing college endowment, is also a major shareholder of CSK Auto. Here are the rest of Harvard's top stock holdings. Harvard's holdings include mostly ETFs and large-caps such as Microsoft, Citigroup(C Quote) and Procter & Gamble(PG Quote). But it's interesting that mid-cap play CSK Auto also makes the list.

For the rest of our top-ranking free cash flow stocks, check out the portfolio on Stockpickr.

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On Stockpickr, I keep track of my favorite 100 or so blogs that serve as my starting point for finding good ideas.

If you think I'm missing something, please send me a message through Stockpickr. You can search on my user name, "James Altucher," and then send me a message once you get to my page.