By Roberto Pedone
American companies are swimming in cash, big cash, as many firms have implemented brutal cost-cutting measures and massive layouts following the near-economic-depression we've been experiencing for the last couple of years. Companies have put off hiring and making capital investments since economic and political uncertainty have cast a cloud over the future direction of the economy.
According to recent data from the
, corporate cash is still hovering at record levels of $1.84 trillion, and cash remains higher than it was just 18 months ago. These high cash levels are starting to become a sore spot among market observers. The hope was that cash-rich companies could ignite the economy coming out of the recession by dipping into their deep pockets to boost spending and demand.
But so far that hasn't happened. It looks like the new trend among cash-rich companies is to return their money to shareholders rather than spend it. This might not be great for the economy in general, but it can lead to big profits now and down the road for shareholders.
With that in mind, we're taking a look today at
that are sitting on a large piles of cash.
There are various reasons that market players should consider investing in cash-rich companies, especially those with little or no debt.
First, a cash-rich company has ample room to initiate, raise or announce a special divided. One great example of this right now can be seen with
, which is sitting on a ridiculous $35 billion in cash. Just today,
by 3 cents, or 23%, to 16 cents a share.
Another reason to fall in love with cash-rich companies is their acquisition power. Companies that are flush in cash have the fire power to engage in takeovers that will help to create synergies and expand market share.
A great example of this is
recent acquisition spree. Hewlett has decided that the best way to expand its datacenter and cloud computing offerings is through acquisitions, rather than by developing product offerings in-house. The company has started to achieve these goals with its takeovers of privately held
, as well as
M&A activity is up sharply so far in 2010, with around $443 billion worth of M&A deals announced in the first nine months of 2010, compared with around $325 billion in the first nine months of 2009.
One final reason to jump on board cash-rich companies is that they have the power to initiate huge stock buyback programs that can help put a floor on their struggling stock prices. So far in 2010, companies have announced $267 billion worth of stock buybacks, compared with $125 billion for all of 2009.
Companies that have recently announced huge buybacks include:
, which announced a $1 billion stock buyback plan;
, which announced a plan to repurchase as much as $15 billion in stock over three years;
, which announced a plan to buy back $300 million in stock;
, which announced a plan to add $7.5 billion to funds available to buy shares; and
, which announced a plan to buy back $1 billion.
First on our list of
is semiconductor chip maker
. Intel currently has a gigantic pile of cash at $18 billion and only $2.4 billion in total debt. The company has a market cap of $105 billion, trades at a forward price-to-earnings of around 10 and has a price-to-book of 2.32. Intel has already shown that it's willing to use its strong cash position to make acquisitions, such as its recent purchase of
Another cash-rich company is Finland-based mobile device maker
. This company is sitting on around $12.8 billion in cash and has $7 billion in total debt, which leaves them with net $5.8 billion in cold hard cash. Nokia has a market cap of $36 billion and trades at a price-to-book of 2.07.
If cash-rich is what you want, than look no further than bank holding and global investment banking giant
Goldman Sachs Group
. Goldman Sachs has a mind-boggling $783 billion in cash on its balance sheet with around $393 billion in total debt, which leaves with the firm with net $390 billion in cash.
Just imagine the stock buybacks and takeovers that Goldman could undertake with that impressive war chest of cash. Goldman has a market cap of $76 billion, trades at a forward price-to-earnings of 8 and has a price-to-book of 1.17.
is another financial holding company loaded to the gills with cash. Morgan's balance sheet shows a company with around $684 billion in cash and $406 billion in total debt, leaving the firm with net $278 billion in cash. Morgan has a market cap of $35 billion and trades at a price-to-book of 0.88.
In the biotech sector, integrated biopharmaceutical company
is loaded with $3.14 billion in cash and only a paltry $20.9 million in total debt. Celgene has a market cap of $26 billion and trades at a forward price-to-earnings of 17 and a price-to-book of 5.3. This biotech's giant cash hoard puts it in great position to acquire underfunded biotech companies with promising drugs.
In the energy sector, oil giant
has filled its coffers with cash over the years. Currently Chevron has $13.2 billion of cash and $10.5 billion of total debt on its balance sheet, which leaves the company with around net $2.7 billion of cash. Chevron has a market cap of $159 billion, trades at a forward price-to-earnings of 8 and has a price-to-book of 1.61.
Another cash-rich company making
is network storage device maker
, which has around $3.9 billion in cash on its balance sheet with only about $1.1 billion in total debt. NetApp has a market cap of $17 billion and trades at a price-to-book of 6.04.
Many players on the Street think NetApp is a great acquisition target, and I am sure its huge cash position bolsters that opinion.
To see more cash-rich companies, including
, check out the
portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.
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