Who's the next buyout candidate?This is by no means an easy question to answer. Smart
- Cash isn't always "free." Be careful with companies that have large cash balances but also substantial liabilities or capital-investment requirements. Look for cash in excess of debt, and look in the statement of cash flows for large negative balances in the investing activities section.
- Cash can be inventory. For most banking and lending companies, cash is, in effect, inventory. So how much cash the company has on hand at any moment is more a matter of timing than true business value.
- Cash can be from IPO or stock sales. Many brand-new companies in launch phase haven't spent their cash yet. It isn't earned from operations and will probably be spent for capital goods or some other longer-term commitment.
- Molina Healthcare (MOH) is a regional health care provider specializing in Medicaid services, with $404 million in cash on a market cap of $870 million and a forward P/E of 17.
- Kellwood Corporation (KWD) is a low-profile retail and outdoor-wear provider, with brands ranging from Gerber Beginnings to Kelty and Sierra Designs. The company sports $341 million in cash on a market cap of $733 million.
- Coherent, Inc. (COHR) is an OEM supplier of lasers, and has $325.9 million net cash against a $950 million market cap.
- Countrywide Financial (CFC) is where I break my rules about financial services providers and market cap. This lending giant has some $23 billion cash against a market cap slightly smaller than that. Yes, there's some debt, but not a lot for a company its size, and it's already rumored to be on the takeover block.