By Tom Bradley

As I was reading the year-end report from CGOV, the manager of our Equity Fund, I was blown away by the numbers.  We’ve talked in the past about the quality of companies in the fund, how well positioned they are to benefit from the recession and how reasonably priced their shares are.  But as the report goes through the holdings, it’s like a wave washing over you. 

Here’s what I mean.

Administaff increased its dividend 18% last August.  The company is debt-free and has $4.30 per share in cash.  IDEXX Laboratories...no debt...$1.40 per share in cash.  Lincoln Electric raised its dividend by 8% on December 4th and has net cash (i.e. cash minus debt) of $4.00 per share.  Twenty-two percent of Nintendo’s market capitalization is represented by cash.  Pason Systems has minimal debt.  TMX Group...no debt...cash and securities totaling $4.50 per share.  Cisco Systems has $27.5 billion of cash on its balance sheet and is expected to generate $10 billon of free cash flow in 2008.

The portfolio is well financed (as you can see), is generating a huge amount of free cash flow and has a high return on capital.  And I can keep going with the names - Research in Motion, CVS/Caremark, Compass Minerals, Diageo, PotashCorp, Ritchie Bros. Auctioneers, Rogers Communications, Shopper’s Drug Mart, Tim Hortons.

CGOV and I are not oblivious to the economic outlook.  We’re all in for some serious hurt in 2009 and perhaps beyond.  But even in the face of earnings estimates coming down, or slashed in some instances, we own an excellent group of companies that are inherently profitable and very liquid. 

With regard to the corporate health measure I wrote about recently (Debt is the Pariah in the New Economic Order), the Equity Fund is solidly on the ‘liquid’ side of the dial.