3 Companies With Heaps of Cash

Companies like Husky Energy Inc. (TSX:HSE) with massive cash hoards have the flexibility and resources to succeed in good times and bad.

| More on:

On July 16, Lundin Mining Corp. (TSX:LUN) announced its intention to make a $1.4 billion cash offer to acquire Nevsun Resources Ltd. The deal is unlikely to pan out given that Nevsun’s board previously rejected a richer deal in May, but it nevertheless highlights Lundin’s enormous cash position and the opportunities that such a cash balance provides.

As of March 31, Lundin had over $1.6 billion in cash and cash equivalents on its balance sheet. With a current market capitalization of around $5.4 billion, the company’s cash represents almost 30% of the entire value of the company.

There are, however, many benefits to having surplus funds that go beyond mergers and acquisitions. Companies in cyclical industries, as well as those exposed to commodity prices, do well to maintain a sizable cash cushion to help them weather difficult times. Equally, extra cash can allow companies to avoid taking on additional debt or issuing shares to raise capital.

This article will examine three companies, each from different sectors, that have lots of cash and cash equivalents on their books. In each case, we will take a look at what role cash plays for these companies.

Husky Energy Inc. (TSX:HSE)

Husky has a sizable chunk of cash, with about $2.3 billion on its balance sheet as of March 31. With a market cap just over $20 billion, the company has over 10% of that figure in cash and cash equivalents.

When oil prices deteriorated in 2015, Husky’s cash reserve of over $1 billion plummeted, but nevertheless it helped to keep the company in good shape. Coming out of the commodity slump, Husky rebuilt its position and made an all-cash acquisition in 2017 of Superior Refinery for US$435 million, adding further downstream capacity.

At its current price, Husky is reasonably valued and trades at a price-to-earnings multiple of roughly 22 and a price-to-book ratio of around 1.2. The company eliminated its dividend during the oil crash, but it was re-instituted in March and now pays a quarterly distribution of $0.075 for a yield of approximately 1.5%.

WestJet Airlines Ltd. (TSX:WJA)

With a market cap of a little more than $2 billion, WestJet was sitting on roughly $1.4 billion in cash, cash equivalents, and marketable securities as of March 31. At first glance, the company appears to have piles of cash, but it doesn’t go as far as you might expect when every new Boeing 737 costs about US$100 million.

Additionally, due to the cyclical nature of WestJet’s business, the company needs to prepare for downturns when travel is a luxury that many avoid. In current economic conditions, WestJet’s cash position will shine, as it continues to grow its fleet of wide-body aircraft and expand to new destinations.

In terms of value, WestJet is inexpensive, trading at a price-to-earnings multiple of slightly less than eight and a price-to-book ratio of a little more than 0.9. The company pays a quarterly dividend of $0.14, which equates to an annualized yield of around 3%.

Brookfield Business Partners L.P. (TSX:BBU.UN)(NYSE:BBU)

This subsidiary of Brookfield Asset Management Inc. acquires or gains controlling interests in businesses across a wide range of industries with the intention of managing them more efficiently, growing their profitability, and benefiting from the results.

Naturally, a company based on acquisitions requires a substantial amount of cash to fund its purchases; the mid-cap partnership, valued at around $3.4 billion, had approximately US$1.8 billion in cash, cash equivalents, and financial assets as of March 31.

The partnership also benefits from a deposit agreement with the parent company, whereby it can place unused funds on deposit with Brookfield and earn interest while it waits to find its next takeover target. While investors place their money in the company’s stock and wait for price appreciation, they get paid a quarterly dividend of US$0.063 — good for a yield of about 0.6%.

Conclusion

Cash is unique because it allows companies to play defence and offence. A balance sheet with a healthy amount of liquid capital can help a company survive in bad times and seize opportunities in good times.

Every company has different cash needs, but the asset is one to look for when doing your research.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor James Watkins-Strand has no position in any of the stocks mentioned. The Motley Fool owns shares of BROOKFIELD BUSINESS PARTNERS LP.

More on Stocks for Beginners

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

3 TFSA Hacks That Could Make You a Millionaire

Do you want a $1 million without worrying about the tax bill? These TFSA hacks could help you become a…

Read more »

Early retirement handwritten in a note
Stocks for Beginners

These 2 TSX Growth Stocks Could Help You Retire Early

Buying these two TSX growth stocks can help you retire early by multiplying hard-earned savings in the long run.

Read more »

Technology
Stocks for Beginners

The Best Stocks to Invest $1,000 in Right Now

Want a great starter portfolio? Here’s a list of the best stocks to invest $1,000 in right now for long-term…

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »