Despite a booming stock market there are no shortage of doomsayers who anticipate a "correction" in the markets. [Related List: 5 Stocks Under $5 Undervalued by EPS Trends]
Should the markets actually experience a tangible negative event the market's climb back could be long and painful. Certainly the reasons for hoarding cash – an uncertain future agitated by troubles in Europe, China, and the US – have not fully disappeared. Cyprus and continued unrest in Greece hold evidence to this.
If economic conditions worsen, then it's possible the strategy of hoarding cash will benefit companies in the long run.
Building The ListWith this in mind we created a universe of companies with large cash cushions. So large, in fact, that the companies in question could run operations (on average) for more than four quarters without earning a single penny in profit. While nobody would want such shares of such a reckless company, a company's cash cushion speaks volumes about its ability to weather tougher economic times, at least in the near term. Large cash holdings also suggest a company has the ability to buy up new companies and expand operations. To refine the quality of our list we searched for the stocks with an increase of short covering. Short sellers are investors that benefit from falling stock prices. If they are covering their short positions on these cash rich names it’s a signal that they are becoming less pessimistic about their short-term performance. Lastly, we applied the wisdom of institutional investors, such as hedge funds, by screening for companies that have seen significantly net positive number of shares purchased in the current quarter (totaling at least 5% of share float). The List Hedge funds and short sellers seems to think these cash-rich companies have more upside than downside–do you agree?
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