These Three Clues Will Lead You to Your Next Big Winner

 Yesterday, I showed you two of the most important "clues" I use to uncover the world's greatest investment opportunities...

1. The amount of free cash flow a company generates, and

2. How it uses that cash to reward shareholders.

The third clue I look for when choosing a great investment is a great balance sheet.

The balance sheet is a financial statement that shows a company's assets and liabilities. Assets are what it owns, and liabilities are what it owes.

There are two kinds of great balance sheets we look for when finding a company that could potentially double or triple your money...

The first is a balance sheet with a massive amount of cash and relatively little or no debt. You can recognize a company like this in 30 seconds or less.

The best example is iPhone maker Apple (AAPL)...

Apple has more than $195.5 billion in cash and securities. And it has $112.1 billion in debt. That's a lot of debt, but it's nothing compared to the amount of cash Apple has. Apple could pay off all its debt and still have $83.4 billion in cash left over.

Imagine having 75% more cash than debt you have on your home, car, and credit cards.

You'd feel pretty secure with that much cash, wouldn't you?

Well, that's how Apple shareholders ought to feel right now. They can rest assured Apple will never have a financial problem with that much cash on hand.

Debt isn't always a dealbreaker, though – which brings me to the second type of great balance sheet I look for...

In short, sometimes a company has more debt than cash... But the business is so good that it earns enough to easily cover the debt payments.

Retail giant Walmart (WMT) is the best example of this...

It has $14.3 billion in cash... and $45.4 billion in debt. That's more than THREE TIMES more debt than cash.

That's a LOT of debt.

But remember, Walmart is a massive company... It does nearly $500 billion in annual sales. It has more than 11,600 locations around the world. It's bringing in a ton of cash every second of every day of the year.

The fact is, after Walmart pays all its expenses, taxes, and debt payments, it has enough earnings left over to equal more than eight times its debt payments.

How good is this?

Well, suppose you have $2,000 per month in debt payments.

Then suppose that after paying all those debt payments, plus all your other living expenses – income taxes and everything – you still have five and a half times $2,000 left over.

So, you'd basically have $11,000 a month left over after you paid all your expenses. That means you'd have an extra $132,000 per year you could spend any way you wanted.

You'd be pretty financially secure. And that's how Walmart shareholders should feel.

So, why do I care about this so much?

Well, in Extreme Value, we've closed out gains of 113% on tobacco giant Philip Morris International (PM)... 133% on chipmaker Intel (INTC)... 150% on beer titan Anheuser-Busch InBev (BUD)... 125% on Warren Buffett's Berkshire Hathaway (BRK-B)... and more than a dozen other double- and triple-digit gains.

And every single one of those companies had a great balance sheet.

I've lost count of how many e-mails I've received from Extreme Value subscribers who tell me they sleep better at night knowing each business we find is so financially strong.

So, to sum up this financial clue...

• Look for companies with great balance sheets.

• Some companies have a lot more cash than debt. That's a great balance sheet.

• Other companies have more debt than cash, but because they earn so much money, their debt payments are easily covered. This, too, makes for a great balance sheet.