With so much uncertainty in the world right now, there is a big temptation for people to curl up into the fetal position and retreat to cash. However, cash doesn’t give you any return right now, and you miss the chance for the upside. Here is a better idea: buy companies that are sitting on a lot of cash. What is "a lot" of cash? Clearly that is a relative number, not an absolute one. My definition of "a lot" of cash is cash and marketable securities which are at least 75% of the market capitalization of the firm. In other words, the ongoing business is less than 25% of what you are paying for when you buy that stock. Of course, having a lot of cash does not do you a lot of good if you are burning through your stash at a fast rate. To guard against that, I also required that the companies be profitable both for the trailing 12 months and expected to be profitable in the current fiscal year. I also excluded Financial firms, which by their very nature tend to have a lot of cash on hand. Several of the companies that make the screen are HMOs, and there is a good argument to be made for excluding them on the same grounds as the Financial companies, even though we group them with the other Medical stocks. You might want to interpret their presence on this list a bit differently than you would the other firms on it. In the table below, I also present the enterprise value of the firm (though it was not part of the screening). Enterprise value is roughly what it would cost you to buy the entire company. Enterprise value is the market capitalization, plus the long-term debt that you would have to assume if you bought the whole thing, minus the cash on the balance sheet. Unfortunately, we do not have the figure in the database for some of the ADRs and very small firms. While all of these stocks are cheap based on the cash on their balance sheets, they are all over the lot when it comes to the most common measure of valuation: the P/E ratio. Some are quite compelling with single-digit P/Es, while others sport triple-digit multiples. A large number of the firms on the list are airlines, which have never struck me as good long-term investments. The size of the firms also varies greatly, from mega-caps like Ford (F - Analyst Report) down to true micro-caps. As always, a screen should just be the starting place for your due diligence. However, buying a lot of cash on the balance sheet is a good way to have a margin of safety in your investment, and as Ben Graham once said, those are the most important three words when you invest.
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