The credit crisis has shifted emphasis back to the importance of a strong balance sheet, something many investors willfully forgot about during the bull market through 2007. Those same investors, who once urged CEOs to take on debt to buy back stock, are now focused on upcoming debt maturities and refinancing fears. With the markets taking a bruising and most major stocks now valued at less than 10 times estimated 2008 earnings, this could be a historical opportunity to buy stocks at bargain-basement prices and wait for a recovery. Barron's Andrew Bary highlights twenty-five cash-rich companies that patient investors can pick up on sale.
Exxon Mobil (XOM) leads the cash race with $30B, Corporate America's largest cash hoard. At $62, it trades at just seven times projected 2008 earnings market value. The firm may shift some of its cash from a stock buyback program to an acquisition, as some independent energy firms face debt refinancing troubles.
Smaller companies may have less cash on hand in real terms, but their holdings make up a greater percentage of their market values. IAC/InterActiveCorp (IACI) and KBR (KBR), for example, both have cash holdings that account for over half their market values.
Once criticized as overly conservative for holding too much cash, several tech leaders are now seeing those cash holdings pay off. Apple (AAPL) and Dell (DELL) have cash equal to over 25% of their market values. Motorola (MOT) and Electronic Arts (ERTS) have cash positions worth 30% of their market values. Yahoo (YHOO) has around $2/share in cash and another $3/share in investments.
Microsoft (MSFT) has a strong balance sheet with $23B in cash and another $6B of equity investments. It also has a monopoly software business and a P/E of just over 10, the lowest in its history. Microsoft may miss its FY 2009 earnings target, but trading at $21.50, one could argue that a miss is already reflected in the stock price.
Industrial stocks have been hurt lately as investors worry about domestic recession and a drop in global demand, leading to P/E ratios at their lowest levels in years. Caterpillar (CAT) trades at just seven times 2008 estimated earnings, United Technologies (UTX) trades at less than ten times earnings, and Deere (DE) at eight times earnings. Citigroup analyst David Raso set a price target of $65 for Deere (currently at $38) and $72 for Caterpillar (currently at $43).
Jim Paulsen, of Wells Capital Management, succinctly said "assets are being given away." He added, "they may not do well in the next several months, but looking ahead two or three years, investors may see some of the best opportunities of their lives."
- The rest of the list: L, NTE, TEX, PCAR, INTC, EBAY, NVDA, BRCM, NOVL, RNWK, CMI, HON, ITW
No comments:
Post a Comment