Image: Dollar sign © Digital Vision, Getty Images

Related topics: Gap, Bristol-Myers Squibb, Archer Daniels Midland, Dollar Tree, Michael Brush

While many people are still scraping to make ends meet in a jobless recovery, corporate America is rolling in cash.

By scrimping on hiring and costs even as business picked up, U.S. companies have stockpiled nearly $2 trillion. All that money is beginning to make investors -- and in turn, top executives -- nervous.

After all, a rule of thumb is that if you leave managers with too much cash lying around, they're liable to blow it on something dumb -- such as ego-building acquisitions that do little for shareholders. And keeping too much money in cash, which might earn less than 1% a year, can drag down performance yardsticks and a stock's price.

Investors -- and politicians -- have started to apply pressure on executives to do something with that cash. That pressure will only grow, and it's having an impact. Share buybacks are up sharply, for example. The unleashing of all this cash, in fact, could be the big business story of 2011 and beyond.

3 trends in the making

This unleashing would create three clear opportunities for investors:

  • B2B. Business-to-business, or B2B, companies -- those that primarily sell things to other businesses -- will see big payoffs as companies increase capital spending. The shares of smaller B2B companies may do particularly well because they are relatively unnoticed. Three potential winners are Faro Technologies (FARO, news), which sells precision measurement tools; Titan Machinery (TITN, news), which sells farming and construction equipment; and GrafTech International (GTI, news), which sells electrodes used in steel production.
  • Rising dividends. Companies likely to use the money to raise dividends look attractive, especially when they are reasonably valued. Strong candidates here are agricultural giant Archer Daniels Midland (ADM, news), drug-maker Bristol-Myers Squibb (BMY, news) and discount retailer TJX (TJX, news).
  • Big share buybacks. The shares of companies deploying cash to buy back large amounts of stock should also see strength, since fewer shares in the market tends to increase the value of those still out there. It's also a sign that top managers see value in their stocks. Potential winners here include clothing giant Gap (GPS, news), airline company SkyWest (SKYW, news) and cut-rate retailer Dollar Tree (DLTR, news).

Image: Michael Brush

Michael Brush

To locate the stocks above, I talked with three investment experts who have consistent records of beating the markets. So I'm pretty confident the nine stocks above have a good shot at outperforming, too. My brain trust here was a co-portfolio manager of Hodges Small Cap Fund (HDPSX), the editor of a dividend newsletter called Investment Quality Trends and the president of Fried Asset Management, which picks stocks in part by looking at buyback trends.

I'll have more on these companies later, but first a deeper look at this cash-rich trend:

Time to cut the blubber

Corporate scrimping has sent annual operating cash flow at companies back up to peak levels, or more than $1 trillion. Capital spending is still down sharply from 2008 peaks, and managers aren't hiring a lot, so the money is piling up.

"Companies have been very cautious even though they are very profitable," says Mark Zandi, the chief economist and a co-founder of Moody's Analytics. "It's showing up as cash on balance sheets."

Cash at nonfinancial companies stands at $1.84 trillion, or nearly 13% of gross domestic product. That's up from $1.43 billion at the end of 2008. And it's a 70-year peak.

Saving money made sense during the scary days of the credit crunch, when many businesses had problems because credit lines dried up. No CEO wants to go through that again. But now that it seems like the economy will at least stay in slow-growth mode, there's growing pressure from investors on companies to deploy cash that's producing virtually no return for shareholders.

"I've heard a lot of questions being put to management saying, 'OK, you've been sitting on a ridiculous amount of cash for two or three years. We understand that has taken risk out of your business. But now what?'" says Eric Marshall, a co-portfolio manager of the Hodges Small Cap Fund. "If investors want to sit on cash, they can have cash in their portfolios."

Here's another way to put it: Cash is like blubber on a seal. It protects the animal during a harsh winter but is bothersome in spring and summer, says Mark Flannery, Credit Suisse Group's U.S. director of research. "We believe that U.S. companies are now ending their recent enforced hibernation. Survival mode is over. . . . Now it's time to cash out."