5 Cash-Rich Income Plays

What follows is an analysis of some of the most liquid income plays. The companies below have current ratios above 3 and dividend yields above 2%. They cover a variety of industries: mining, semiconductors, biotechnology and consumer goods. Freeport McMoRan (FCX) is the most favored on The Street, followed by Amgen (AMGN).

Freeport McMoRan

Freeport is rated a "strong buy" on The Street and trades at a respective 9.7x and 8.2x past and forward earnings, with a dividend yield of 2.2%. The current ratio stands at 3.4, while the beta is 2.

Consensus estimates for Freeport's EPS forecast indicate that it will decline by 11.6% to $4.28 in 2012 and then grow by 28.3% and 3.5% in the following two years. Of the 17 revisions to estimates, 16 have gone down, for a net change of -9.3%. Assuming a multiple of 11x and a conservative 2013 EPS of $5.35, the rough intrinsic value of the stock is $58.85, implying 27.6% upside.

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Applied Materials (AMAT)

Applied Materials is rated a "hold" on The Street and trades at a respective 8.4x and 10.7x past and forward earnings, with a dividend yield of 2.6%. The current ratio stands at 3.7 while the beta is 1.1.

Consensus estimates for Applied Materials' EPS forecast indicate that it will decline by 41.5% to $0.76 in 2012 and then grow by 48.7% and 12.4% in the following two years. Of the 5 revisions to estimates, 4 have gone up, for a net change of 0.5%. Assuming a multiple of 10x and a conservative 2013 EPS of $1.07, the rough intrinsic value of the stock is $10.70, implying 12.5% downside.

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Amgen

Amgen is rated a "buy" on The Street and trades at a respective 17x and 11.6x past and forward earnings, with a dividend yield of 2.1%. The current ratio stands at 4.6 while the beta is 0.5.

Consensus estimates for Amgen's EPS forecast indicate that it will grow by 11.4% to $5.94 in 2012 and then by 10.8% and 11.1% more in the following two years. Modeling a CAGR of 11.5% for EPS over the next three years and then discounting backwards by a WACC of 9%, it yields a fair value figure of $93.85, implying 37.3% upside.

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Xilinx (XLNX)

Xilinx is rated a "hold" on The Street and trades at a respective 17.2x and 17.8x past and forward earnings, with a dividend yield of 2.1%. The current ratio stands at 6.2, while the beta is 1.

Consensus estimates for Xilinx's EPS forecast that it will decline by 20.1% to $1.91 in 2012, and then by 5.8% and 16.8% more in the following two years. Assuming a multiple of 18x and a conservative 2013 EPS of $1.97, the company is roughly at fair value.

American Eagle (AEO)

American Eagle is rated a "hold" on The Street and trades at a respective 14.7x and 13.2x past and forward earnings, with a dividend yield of 3.2%. The current ratio stands at 3, while the beta is 1.

Consensus estimates for American Eagle's EPS forecast indicate that it will decline by 15.7% to $0.86 in 2012 and then grow by 23.3% and 17.9% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $1.01, the rough intrinsic value of the stock is $15.15, implying 8.3% upside.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.