"I don't look to jump over seven-foot bars: I look around for one-foot bars that I can step over." -- Warren Buffett
If you're in the market for some of those one-foot bars Buffett loves, I've got a good staring point: companies where the net amount of cash on hand represents a significant portion of the share price. On a few rare occasions, you're being handed the actual business operations for free -- or at least, close to it.
Using the wisdom of our 135,000-investor-strong Motley Fool CAPS community, I went on a hunt for companies that could fit "scraped-off-the-pavement" criteria. Specifically, I looked for:
- No long-term debt.
- Estimates of profitability in 2009.
- A high level of total cash in relation to current share price.
Pretty straightforward. Among others, I came across these five:
|
Company
|
Market Cap
|
Recent Price
|
Total Cash
per Share
|
2009 EPS
Estimates
|
CAPS Rating
(out of 5)
|
|
Apple
(Nasdaq: AAPL )
|
$123 billion
|
$137.37
|
$28.04
|
$5.52
|
***
|
|
American Eagle Outfitters
(NYSE: AEO )
|
$2.8 billion
|
$13.55
|
$2.17
|
$0.79
|
***
|
|
GigaMedia
(Nasdaq: GIGM )
|
$303 million
|
$5.57
|
$1.79
|
$0.42
|
*****
|
|
Sigma Designs
(Nasdaq: SIGM )
|
$449 million
|
$16.87
|
$5.40
|
$1.24
|
*****
|
|
ChinaDigital TV Holding
(NYSE: STV )
|
$476 million
|
$8.29
|
$3.65
|
$0.61
|
****
|
Data from Motley Fool CAPS and Yahoo! Finance, as of June 22, 2009.
Stop saying Apple is overvalued
Now that Apple reported blowout sales of its latest iPhone, I thought I'd take another look at its shares.
The case for Apple has been clear for a while: It's an innovation juggernaut that's gaining the hearts and minds of consumers at a staggering rate. And since its niche surrounds consumers rather than businesses, the competitive threat from Microsoft (Nasdaq: MSFT ) and Research In Motion (Nasdaq: RIMM ) is more moot than many assume. When it comes to Apple's target customer, it's truly in a league of its own. As CAPS member dmpilot writes:
You got to hand to the people at Apple, somehow they seem to consistently be able to deliver product(s) that deliver are more enriched experience than their competitors. That's why they've been so successful with their iPod, iPhone, and computers.
What intrigues me here is Apple's cash hoard. With over $28 per share in cash (and no debt), fully 20% of this company's market cap is represented by idle funds, not earnings power. This is exceptionally important when we're talking about Apple's valuation: The headline number shows shares trading at about 25 times earnings, but when you back out the slug of cash, you get approximately 20 times 2009 earnings, and 17 times 2010 estimates.
Does that make Apple cheap? Well, no. Are other stocks monumentally cheaper? Yes, of course. But taking Apple's cash stash into consideration puts its valuation in a more rational context. By almost any measure, calls that shares are grossly overvalued are likely far too pessimist. A company with a near stranglehold on consumer computer-based electronics trading at the equivalent of 17 times next year's earnings is hardly outrageous. It's utterly meaningless to simply gawk at Apple's share price and jump to conclusions of overvaluation -- the total market cap is a reflection of both a cash-rich balance sheet that provides an anchor of shareholder value and an earnings machine that's destined to grow.
Your turn to chime in
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