Earlier this week, Apple
Many companies, large and small, have been hoarding cash since the recession as a way to maintain liquidity. However, with the economy improving, many companies are seeing less need to carry high amounts of cash. For ideas on which stocks are more likely to be offering a new dividend in the near future, we ran a screen.
We began by screening the tech sector for stocks with high amounts of cash holdings, with over $1 billion in most recent quarter cash holdings. When companies have excess cash, they either use it to reinvest in the company or they pay it back to shareholders in the form of dividends or share buybacks.
We then screened for those that appear undervalued by two measures, levered free cash flow/enterprise value and relative to EPS trends. An undervalued stock supports the idea of a share buyback, which becomes a more attractive payout option if the company believes their shares are undervalued.
Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. The higher the ratio, the more undervalued the company appears.
As for EPS trends, if you assume that P/E is equal to a constant k, increases in EPS should be matched by proportionate increases in price. When they don't match up, a mispricing may have occurred. That is, these stocks have been seeing stronger increases in analyst estimated EPS than increases in price over the last month.
Business section: Investing ideas
Below are the results of this screen. These high-cash tech stocks appear undervalued by two measures.
Do you think these companies are likely to offer a new shareholder payout soon?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
3. Western Digital
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Cash data sourced from Screener.co, EPS and LFCF/EV data sourced from Yahoo! Finance.