The rich really do get richer

Rich companies with enormous cash reserves don't just get bragging rights. They get winning stocks, too.

There are eight stocks in the Standard & Poor's 500, including Yahoo (YHOO),Apple (AAPL) and computer chipmaker Nvidia (NVDA), that are holding enormous amounts of cash and investments that also account for more than half their total assets, according to a Paste BN analysis of data from S&P Capital IQ. The list includes companies with $2 billion or more in cash and investments, which represent 60% or more of their total assets.

You might think these cash-rich companies would be punished for stockpiling so much dough – at a time when interest rates are at rock bottom lows. But just the opposite is the case. A custom equal-weighted index of these eight stocks is up 19.4% over the past 12 months. That blows away the S&P 500's 12.7% gain during the same time.

Huge cash balances come into focus again Monday when the richest of the rich reports its earnings for the first calendar quarter: Apple. Investors are eagerly awaiting to hear if the technology giant reveals any plans to return some of its cash stockpile in the form of higher dividends or a bigger stock buyback. The company ended its most recent quarter with more than $178 billion in cash and investments, more than any other U.S. company. More than 60% of its assets were in cash.

Why are investors rewarding companies when they're sitting on cash? Investors might be betting the companies will:

* Start shoveling money back, eventually. Yahoo's core business might not be growing as rapidly as many investors hoped it would by now, but that's not where the action is. Investors are fixated on the company's pile of $41.2 billion in cash and investments, which account for a whopping 82% of Yahoo's assets. One analyst sees upside to the stock, which is already up 26% the past 12 months, as the company finds new ways to get some of this cash and other investments back to investors. He says 88% of Yahoo's stock value is locked up in cash and other investments.

* Keep piling up cash because profits are strong. A huge cash pile is a side-effect in some cases of a highly profitable business. And investors are willing to pay up for durable profits – and might tolerate cash sitting around in a savings account. Apple is a storied profit machine and can't spend money fast enough. But Apple is not the only company where cash is piling up along with profit. Nvidia isn't a household name like Apple but it's sitting on more than $4.6 billion in cash and investments. That's 64% of its total assets. But the reason – the company is doing well and profits are steadily growing so cash keeps rolling in. The company's net income jumped 43% last fiscal year to $630 million – and its free cash flow jumped to $783 million. The company has been steadily profitable since the fiscal year ended in January 2010. That's good for the bank account.

* Be in a hot sector: Tech. Part of the run by cash rich companies is just a case of being in the right neighborhood. If you look at this list of rich companies, you'll soon notice it's dominated by tech. Tech stocks are on fire. Just look at the Nasdaq composite index – which last week took out its all-time high. That's a remarkable feat since the Nasdaq was a major bubble the last time it soared over 5000 back during the dot-com boom.

Activist shareholders are already on the cases of several of these companies – pressuring them to start handing the cash back. And they'll probably eventually get their way. But with the stocks of these cash-rich companies rising – what's the hurry, when the rich get even richer.