Limit Your Risk: Smart Money Stock Picks in Strong Cash Positions

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(Written by Alexander Crawford. Accounting data sourced from Google Finance, institutional data sourced from Fidelity, insider data sourced from Yahoo! Finance.)

Since the recession, persistent uncertainty has caused many US companies to stockpile their cash as a way to prepare against future dips in demand. Apple (AAPL) currently has an astonishing $81.6 billion in cash, althoughCEO Tim Cook said the cash isn’t “burning a hole in our pocket.” Google (GOOG) also reported $42.6 billion in cash at the end of the third quarter. What does this mean for investors?

Cash is King

High levels of cash mean that a company is in a safer position to endure future lulls in demand – a great asset at a time when IMF chief Christine Lagarde is warning of the risk of a global “lost decade” amid a quickly evolving European debt crisis.

High cash also puts companies in a strong position to enter a global recovery, allowing for hefty acquisitions that would otherwise not be possible. A great example is Google’s plan announced in August to purchase Motorola Mobility for $12.5 billion, allowing Google to enter the mobility hardware business.

Investing Ideas

The more volatile markets become, the more comfort investors may find in stocks with large amounts of cash relative to operating expenses.

With that idea in mind, we ran a screen for stocks with the highest amounts of cash relative to their average quarterly operating expenses. We also searched for companies with buying attention from the “smart money” investors: institutional investors and company insiders.

The smart money believes in these cash-comfortable names – do you? Use this list as a starting point for your own analysis.

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List sorted by cash / avg. operating expense.

1. Complete Genomics, Inc. (GNOM): Develops and commercializes a DNA sequencing platform for human genome sequencing and analysis. Average quarterly operating expense over the last five quarters at $16.42M, vs. most recent cash and short term investments at $126.41M, implies a Cash / Avg. Operating Expense ratio at 7.7. Net institutional purchases in the current quarter at 6.4M shares, which represents about 62.62% of the company's float of 10.22M shares. Over the last six months, insiders were net buyers of 1,650,000 shares, which represents about 16.14% of the company's 10.22M share float.

2. GTX Inc. (GTXI): Engages in the discovery, development, and commercialization of small molecules to treat cancer, osteoporosis and bone loss, muscle loss, and other serious medical conditions. Average quarterly operating expense over the last five quarters at $11.27M, vs. most recent cash and short term investments at $83.01M, implies a Cash / Avg. Operating Expense ratio at 7.37. Net institutional purchases in the current quarter at 11.4M shares, which represents about 53.98% of the company's float of 21.12M shares. Over the last six months, insiders were net buyers of 6,978,510 shares, which represents about 33.04% of the company's 21.12M share float.

3. Alimera Sciences, Inc. (ALIM): Engages in the research, development, and commercialization of prescription ophthalmic pharmaceuticals. Average quarterly operating expense over the last five quarters at $5.55M, vs. most recent cash and short term investments at $38.61M, implies a Cash / Avg. Operating Expense ratio at 6.95. Net institutional purchases in the current quarter at 2.0M shares, which represents about 27.25% of the company's float of 7.34M shares. Over the last six months, insiders were net buyers of 7,553 shares, which represents about 0.10% of the company's 7.34M share float.

4. Midway Gold Corp. (MDW): Engages in the acquisition, exploration, and development of mineral properties in North America. Average quarterly operating expense over the last five quarters at $2.47M, vs. most recent cash and short term investments at $15.26M, implies a Cash / Avg. Operating Expense ratio at 6.17. Net institutional purchases in the current quarter at 7.8M shares, which represents about 10.18% of the company's float of 76.63M shares. Over the last six months, insiders were net buyers of 100,000 shares, which represents about 0.13% of the company's 76.63M share float.

5. Threshold Pharmaceuticals Inc. (THLD): Engages in the discovery and development of drugs targeting the microenvironment of solid tumors for patients living with cancer. Average quarterly operating expense over the last five quarters at $6.46M, vs. most recent cash and short term investments at $31.49M, implies a Cash / Avg. Operating Expense ratio at 4.88. Net institutional purchases in the current quarter at 1.2M shares, which represents about 4.31% of the company's float of 27.84M shares. Over the last six months, insiders were net buyers of 1,965,820 shares, which represents about 7.06% of the company's 27.84M share float.

6. Winthrop Realty Trust (FUR): Engages in the ownership and management of real property and real estate-related assets. Average quarterly operating expense over the last five quarters at $10.66M, vs. most recent cash and short term investments at $51.34M, implies a Cash / Avg. Operating Expense ratio at 4.82. Net institutional purchases in the current quarter at 4.3M shares, which represents about 14.75% of the company's float of 29.16M shares. Over the last six months, insiders were net buyers of 198,400 shares, which represents about 0.68% of the company's 29.16M share float. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: ALIM , GNOM , GTXI , MDW , THLD , FUR

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