As the saying goes "cash is king". And sometimes investing in companies that hold a lot of cash can lead to some royal gains. This is often because companies with solid underlying cash flow typically have strong operating models.
Also, companies with large cash positions have the flexibility to pursue growth opportunities organically or through acquisition—and can opt to reward shareholders through dividends and buybacks.
Here we examine a few companies that have healthy cash balances relative to their near-term obligations and steady growth prospects ahead.
Is Guidewire Software a Good SaaS Play?
Guidewire Software (NYSE:GWRE) is yet to report its fiscal first quarter earnings, but its most recent filings show a cash position of almost $1.2 billion. The mid cap company generates revenue from subscriptions, licensing, and services related to its property and casualty (P&C) insurance software solutions. The software helps P&C insurers be more productive, more digital, and bring products to market faster. This drives recurring revenue of more than $500 million annually at Guidewire.
Recently its main growth drivers have been increased demand for several of its cloud-based products including its InsuranceSuite Cloud offering. As insurance companies continue to move towards subscription-based cloud services, Guidewire's cloud platform and analytic add-ons are expected to help guide decisions in an industry where advanced analytical capabilities are a must-have to stay competitive.
Much of the company's success relates to its PartnerConnect platform which has grown to more than 100 solution partners over the years. Partnering with Amazon Web Services (AWS) for cloud deployment certainly helps with credibility and financial performance.
As Guidewire continues to transition from a licensing model to a subscription model, cash flow and profitability are expected to strengthen. The company will likely be a major beneficiary of global growth in software-as-a-service (SaaS) and its favorable liquidity position will only enhance its growth prospects.
How are Dolby Laboratories Financials?
Dolby Laboratories (NYSE:DLB) is another cash heavy technology company that swims in a different part of the tech pool. Perhaps best know for Dolby Surround Sound, the company is the audio, imaging, and voice technology behind theater operations and a range of home, office, and mobile devices.
Dolby makes most of its money from licensing its audio technologies to broadcasters, television OEMs, computer manufacturers, gaming console companies, and cell phone makers. Since this accounts for 95% of revenue, it makes for a resilient business model that generates a known stream of cash.
Given its exposure to an entertainment industry that has had a rough go of it during the pandemic, you may expect that Dolby is struggling. In fact, it's the opposite.
Rising consumer demand for premium home entertainment is driving demand for Dolby Cinema technology. Meanwhile, higher demand from e-commerce platforms for audience-engaging content is spurring sales of Dolby Vision. And as movie theaters reopen, this cash producing machine will only grow stronger.
A big part of Dolby's financial performance is linked to its partnership with Netflix which enlists Dolby Vision and Dolby Atmos to stream entertainment to its more than 200 million global subscribers.
Dolby Labs is one of the best managed technology companies from a financial standpoint. It makes 'sound' decisions when it comes to capital deployment including investing in new growth technologies and rewarding shareholders with dividends and buybacks. With a balance sheet that never carries any long-term debt and currently includes $1.1 billion in cash, Dolby is a stock that investors should be tuned into.
What Makes Neogen a Good Stock to Buy?
Neogen (NASDAQ:NEOG), a provider of animal and food safety products, has a cash ratio of 7.4. This means it its cash position is more than seven times the amount of its current liabilities.
The company's financial strength stems from strong demand from food manufacturers for diagnostic test kits that can detect foodborne bacteria, allergens, and toxins. The other half of the business benefits from equally strong demand for a wide range of animal safety products and services from veterinarians, farmers, and life sciences companies. More recently increased sales of cleansers and disinfectants during the pandemic has been a boost to performance.
Neogen as a well-balanced business model with exposure to the increasing attention worldwide on animal and food safety. China represents a major growth opportunity. Last quarter sales were up 59% there amid elevated demand for Neogen disinfectants and genomics products in the wake of the COVID-19 and African swine fever outbreaks. Demand has been similarly robust in Australia due in part to Neogen's acquisition of one of its former food safety product distributors in the region.
Perhaps the most attractive part of Neogen as an equity investment is that most of its products are consumables. Therefore, its customers need to continually reorder as the products are used.
This has much to do with why Neogen is a cash cow. Its strong level of solvency, lack of debt, and global opportunities in two large, growing markets make it a safe bet for investors.
Featured Article: What is the Beige Book?7 Internet of Things Stocks That Are a Perfect Fit to Our Connected Future
When you say the Internet of Things (IoT) you may get different responses. I like to think of it broadly as being about connection. It’s about devices that can connect with each other, and with the internet. And this provides users with the solutions that are making our lives more convenient.
The most basic, and ubiquitous, example of an IoT device is the smartphone that many of us have with us at all times. But think about what that has led to. Home assistants, security cameras, fitness apps, and so much more are all enabled by the internet of things.
IoT took on even more importance in the pandemic as businesses had to find a way to ensure the security and viability of their networks even as their employees were scattered remotely. This created demand for edge and cloud computing solutions that are also facilitated by the internet of things.
And yes, this is just the start. The need for more and more data is powering demand for IoT solution in areas such as autonomous vehicles.
But the good news is that this is an area that is still very much in its growth phase. And that means there is no lack of companies that you can find to trade in this sector. To help you get started, we’ve put together this special presentation that highlights seven such companies and the reasons why we believe they merit adding to your portfolio.
View the "7 Internet of Things Stocks That Are a Perfect Fit to Our Connected Future"
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