Cash Is King

Yes, cash is king, but it certainly does no good under the mattress! One of the most cash rich sectors out their are the industrial. This is an over-weighted sector for us and one of our favorite names is Illinois Tool Works (ITW). In addition to it’s 2.6% dividend yield, this cash rich company ($2.53 free cash flow/sh)has been a master at cutting costs in the downturn and is on it’s way to positive revenue growth in 2010. Even though companies have been keeping lean inventories, at some point they will have to do restocking. GM has recently reported a sales increase of 11.5% in February with some new products selling out! ITW will benefit from all of this. Even if interest rates do move up and cramp economic growth, you have a cash rich company paying you a dividend while you wait. As long term investors, our minimum time horizon is 12-18 months. Our target price is 15x 2012e of $4 or $60. that’s a 20% upside plus the 2.6% dividend yield.