"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 those one-foot bars Buffett loves, I've got a good staring point: companies beaten to such a pulp that just their 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 130,000-investor-strong Motley Fool CAPS community, I went on a hunt for companies fitting these bargain-basement criteria. Specifically, I looked for:
- Estimates of profitability in 2009.
- No long-term debt.
- 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)
|
|
Activision Blizzard
(Nasdaq: ATVI )
|
$13.9 billion
|
$10.69
|
$2.30
|
$0.63
|
*****
|
|
Hurco Companies
(Nasdaq: HURC )
|
$88.7 million
|
$13.81
|
$4.69
|
$0.54
|
*****
|
|
Intuitive Surgical
(Nasdaq: ISRG )
|
$4.4 billion
|
$112.24
|
$11.52
|
$4.97
|
****
|
|
Morningstar
(Nasdaq: MORN )
|
$1.5 billion
|
$32.02
|
$6.29
|
$1.58
|
*****
|
|
Nam Tai Electronics
(NYSE: NTE )
|
$181 million
|
$4.04
|
$5.29
|
$0.04
|
*****
|
Data from Motley Fool CAPS and Yahoo! Finance, as of April 12, 2009.
Great company, great future, reasonable price
While not spectacularly cheap by most standards, keep the big picture in mind when looking at shares of Intuitive Surgical:
- This is a monopoly business. It deserves a premium multiple.
- Recession or no recession, business is still growing nicely.
- Its balance sheet is about as good as anyone can ask for. Loaded with cash. No debt. No complaints.
With shares still down 65% in the past year, Intuitive Surgical is attracting investors who've admired this company's impressive business model yet balked at its historically steep valuation. Our CAPS community is filled with investors such as Caligiuri, who recently wrote:
Cash flow statement and balance sheet look phenomenal. Great product that will enable to company increase book value. No debt. Solid leadership team.
Sure, the price isn't exactly cheap right now, but when you have a company as impressive as [Intuitive Surgical] you are going to have to pay up for it. Estimated 5 year growth rate is over 20% which raises the stock price, but for good reason.
When the economy turns around everyone will want to be in this company and it will probably get way overpriced, just like it did before.
Not unlike Microsoft (Nasdaq: MSFT ) or Google (Nasdaq: GOOG ) in their early years, Intuitive Surgical is an innovative company with little competition that increases the productivity of its customers and comes with a pristine balance sheet. That combo equals years of superior returns. With Intuitive Surgical's bubble days behind us, there's plenty to love about this stock.
Freeze frame
Another market-leading company with a bulletproof balance sheet is Activision Blizzard. Discretionary entertainment can be a dangerous investment during a consumer-led recession, provided consumers aren't already completely addicted to a product and competition is brutal.
But CAPS member TMFSTX laid out a dual-case scenario that could leave this stock sitting pretty no matter where the economy's heading:
A broad suite of popular games, steady stream of small sales to ring the cash register, and upside breakout potential in the form of new products. Plus, my gut tells me that in a prolonged recession game sales will remain somewhat resilient. (If you already own the system a video game offers some of the best 'cost per hour' metrics out there) If there's a V shaped recovery [Activision Blizzard] does really well as people spend more during the holidays. And if you are part of the pessimist crowd and believe that we are headed for a Mad Max scenario you'll be able to use the guitars as weapons. It's a perfect company for all environments.
All joking aside, the idea is valid: Should consumer spending pick up, Activision's dominant position in the video game industry could recharge sales and send this stock soaring. Should the recession drag on longer and nastier than some forecast, you're looking at a company with an impenetrable balance sheet and an industry proving itself to be somewhat immune to collapsing sales. Heads you win, tails you're OK.
Your turn to chime in
What do you think about either of these companies? More than 130,000 investors use CAPS to share ideas and swap opinions. Click here to check it out and speak your mind. It's 100% free to participate.
For further Foolishness:
RSS Headlines
Fool UK