(List compiled by Andrew Dominguez)
Earlier this week, Kapitall contributed to a body of blogs and reports that lambast the US government’s dearth of treasure, largely the result of unwarranted partisan brinkmanship in the House of Representatives, and point out that a number of corporations are more flush with funds than Uncle Sam.
On Thursday, Kapitall co-founder David Neubert explained that large sums of cash do not a healthy company make. In fact, Neubert, who is a savvy investor, is betting on the decline of two and neutral on the rest of the companies that this author included in his list of corporations with more cash than the US government.
Neubert’s reasoning: cash isn’t everything, especially when the threat of a Euro collapse could wreck markets.
So, what is cash worth?
Robert X. Cringely, a veteran tech journalist, documentary filmmaker, and Silicon Valley consultant, explains that gargantuan stockpiles of cash can be quite handy, particularly for tech firms.
In his August 1 blog entry, entitled Apple’s Money, Cringely explains Apple CEO Steve Jobs’ cash hoarding policy, a strategy notably employed by Hewlett-Packard co-founder Dave Packard in the 1950’s, and emulated by numerous tech firms ever since.
Packard’s reasoning was simple. In his mind, he could better grow the company’s growth with its amassed cash rather than through corporate debt.
Like Packard, Jobs chose to forego dividends and instead sit on a growing stockpile of cash, probably as a bulwark against any missteps he might commit. Cringely attributes this conservative mentality to Jobs’ previous experience as the co-founder of the nascent Apple Corp in the 1970s and his exile from the struggling Apple in the 1990s.
Of course, Jobs has not made many costly mistakes since his return to Apple in the late 1990s. Instead, Apple has generated prodigious amounts of revenues, in large part due to the success of the iPod, iPhone, iPad, and iTunes.
Consequently, Apple has more free cash than it has ever chosen to use (Cringely points out that Apple’s biggest-ever investment was a $2.4Bn deal for Nortel patents). This has given the company unrivaled purchasing ability, as Cringely explains:
“And so Apple today uses its cash to buy parts in huge quantities. Lately this has mainly meant buying flash RAM and iPhone displays in amounts that move whole markets and guarantee Apple the lowest prices anywhere. This is important: in an era where interest rates on idling cash are averaging one percent, Apple is using its cash to get 15-20 percent discounts on parts. That’s exactly like earning a 15-20 percent interest rate.
Apple not only gets the lowest prices, they also get the most reliable supply. I won’t call it anti-trust, but I think it is fair to say Apple has an effective consumption-side monopoly for certain mobile components.”
So which other companies have large piles of cash, and does it offer them a competitive advantage (as is the case with Apple)? To assist you with your own analysis, here is a list of rallying companies that have significant cash versus annual operating expenses.
Note: The ratio of cash to operating expenses represents the amount of time that the company can theoretically continue to pay its operating expenses with cash holdings, assuming expenses do not change.
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List sorted by the ratio of cash to annual operating expenses.
1. InterDigital, Inc. (IDCC): Wireless Communications industry with a market cap of $3.05B. MRQ Cash/Operating Expenses at 4.42 (Cash and Equivalents in the most recent quarter at $701.11M and annual Operating Expenses at $158.67M). The stock is trading 43.36% above its 50-day moving average, and 52.86% above its 200-day MA.
2. Banco Latinoamericano de Comercio Exterior, S.A (BLX): Foreign Money Center Banks industry with a market cap of $667.02M. MRQ Cash/Operating Expenses at 4.09 (Cash and Equivalents in the most recent quarter at $356.M and annual Operating Expenses at $87.06M). The stock is trading 4.35% above its 50-day moving average, and 7.55% above its 200-day MA.
3. Allied Nevada Gold Corp. (ANV): Gold industry with a market cap of $3.38B. MRQ Cash/Operating Expenses at 3.09 (Cash and Equivalents in the most recent quarter at $321.08M and annual Operating Expenses at $103.91M). The stock is trading 6.23% above its 50-day moving average, and 20.63% above its 200-day MA.