"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 starting 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.
- 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)
|
|
eBay (Nasdaq: EBAY )
|
$22 billion
|
$17.23
|
$2.52
|
$1.47
|
***
|
|
Google (Nasdaq: GOOG )
|
$131 billion
|
$416.00
|
$56.29
|
$21.03
|
***
|
|
Gymboree (Nasdaq: GYMB )
|
$1 billion
|
$34.25
|
$5.07
|
$2.92
|
**
|
|
Netgear (Nasdaq: NTGR )
|
$536 million
|
$15.60
|
$5.83
|
$0.24
|
*****
|
|
Timberland (NYSE: TBL )
|
$774 million
|
$13.62
|
$2.80
|
$0.78
|
*
|
Data from Motley Fool CAPS and Yahoo! Finance, as of June 16, 2009.
Whither Google?
The facts are fairly clear: Google is the Internet powerhouse and has a balance sheet any investor should drool over. At about 20 times forward earnings, the stock isn't necessarily cheap, but it is by no means overcooked for a company with a moat this strong.
The question then becomes, "How long can Google keep its momentum going?" General Motors used to be a grand success too, you know.
CAPS member hotelinorbit2 had some interesting thoughts on this matter recently:
Google is too alone and susceptable [sic] to competitive attack. It's too easy to reproduce what Google does. [Microsoft (Nasdaq: MSFT ) ] with Bing that is loaded on anyone's computer with Internet Explorer is one of the easiest competitors that could arise. [Yahoo! (NYSE: YHOO ) ] could make a come back.
China or India could establish a more popular local search engine that appeals to their people and undercut google.
These are fair arguments ... to a point.
Powerful moats are not solely the result of inventions that are impossible to replicate or totally patent-protected. There's nothing intrinsically complicated about Coke, Wrigley's, or Tylenol -- all three are essentially commodity products that found a way to deliver a tiny bit more joy to customers through brand-name awareness, and all three achieved wild success.
Similarly, Google took a relatively commoditized product, found a way to make it more efficient for consumers, and therefore built a loyal following that is virtually irreplaceable. For Pete's sake, it's turned its name into a verb. Even if competitors like Microsoft's Bing end up building a superior product, Google claims a stranglehold on consumers' minds that all but assures sizable market share.
Besides, you can spin this commoditized logic in reverse, and claim that Google can simply copy others' improvements and exploit them into huge success using its dominant market share.
Is Google indestructible? No. No company is. But you could certainly do worse than buying dominant companies with phenomenal business models and cash-rich balance sheets.
Your turn to chime in
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