NEW YORK (TheStreet) -- We are now in the season when, from an investing perspective, cash is "king" once again.GMO Chief Investment Strategist Jeremy Grantham channeled himself through a spokesperson recently and stunned members of the Value Investor Conference in London by confessing that the investment firm was 50% in cash. GMO, the famous Boston-based contrarian investment firm, manages about $100 billion in assets mostly for institutions and the wealthy. At the conference the GMO spokesman warned that it now considers all western stock and bond markets to be ominously overpriced. The firm believes that from current market levels most investors are likely to lose money, after factoring in inflation, over the next seven years or so. The firm considers China to be in a dangerous bubble but it did say it still saw some opportunities in other emerging markets. It moved to 50% cash and cash equivalents awaiting better buying levels. From an asset allocation standpoint, being 50% in cash may sound very bearish. From my viewpoint it looks opportunistic, and follows the "Jim Cramer model" of always having enough cash to buy the dips. U.S. stocks are still expensive with a price-to-earnings ratio for the S&P 500 somewhere around 16.5, up from 14.7 at the end of 2012. With third quarter earnings season about to begin the "E" in P/E, earnings, isn't looking too bright. So the notion that we should be mostly invested in stocks right now may not be prudent. If you own stocks with ridiculously high P/E like Amazon ( AMZN) and Netflix ( NFLX) you may be "cruising for a bruising". To illustrate my point Netflix is trading with a P/E of about 407 and a forward (1-year) P/E ratio based on anticipated earnings of almost 100. The current stock price trades at nearly 100 times next year's EPS. My point about having cash right now can also be emphasized by a question. Would you rather own 20 shares of Netflix at $327-per-share now, or have $6,450 the next time NFLX corrects to a 52-week low? Its 52-week low was $57.40 on Friday.
Both companies' stock hit new 52-week highs on Oct. 4, yet Nexstar trades at a current P/E of less than 8 and a forward (1-year) P/E of only 12.56. Sinclair's two P/E ratios are 24.4 current and a low 11 for the year ahead. Both stocks can suddenly correct especially on any news that the FCC may be considering proposals that limit the extent that broadcast companies can grow by acquisitions and mergers. Also making a correction possible is that shares of both companies have skyrocketed since the beginning of September. Yet the stocks' valuations are not much higher than they were two years ago. Sinclair pays a dividend with a yield-to-price of 1.73% and Nexstar's dividend yield is 1.07%. Even with the current surge higher, Nexstar trades at around 8 times 2014 estimated cash flow (EBIDTA earnings) and Sinclair at around 6 times 2014 EBIDTA cash flow. The FCC may continue to sponsor auctions that allow wireless operators to buy spectrum for billions of dollars. Sinclair's spectrum alone is estimated to be worth $3 billion or $36 a share. Nexstar's spectrum may command a value of $800 million, or $25 a share. So using a baseball analogy, this lucrative game might still have 4 innings or so to go. The FCC's most recent plan is to eventually hold an incentive auction to motivate broadcasters to return their spectrum in exchange for enormous, one-time payments. This voluntary auction is scheduled for next year but may be delayed. Sinclair has stated it would rather lease spectrum than sell it while continuing to operate its profitable businesses, especially its local TV stations. Nexstar may go a different route, or, be acquired by a bigger company like a major network such as CBS ( CBS). Any way you slice it, the value of spectrum will be a powerful catalyst for the two companies stock for years.