“CASH-STOCK” LIST
Hi folks, I keep going on about liking stocks with strong balance sheets and lots of cash. Well my Christmas present to you is a list of same (mostly) that I analyzed over the weekend. The purpose was two-fold (1) I want to review my portfolio to consider substituting out weaker balance sheets and (2) to offer up some ideas for value investors and traders.
RELEVANCE
Now these are not all necessarily great opportunities, this list is all of the stocks that I analyzed. They are ones of interest that I have had a look at in the recent past, as well as some Motley Fool favourites. The important thing to remember here is that it is a relative comparison. The ones near the top of the list are the ones of greater interest.
SOURCE OF DATA
The data source is used is from the www.marketwatch.com quarterly balance sheet page. For each stock, I copy/pasted the balance sheet into a Microsoft Excel file, calculated and captured the various metrics below for each stock, and compiled and formatted the list. The balance sheet information used is that for the most recent available quarter.
KEY METRICS
The metrics below are as follows:
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%Cash is the percentage of the stock price which is represented by cash + marketable securities + accounts receivable – all current liabilities.
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Cover is ratio of cash+marketable securities, divided by total liabilites – current and long-term.
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FCF is free cash flow % of the stock price, as provided in the balance sheet – which represents excess cash coming in over and above the company’s obligations and its investment needs.
%CASH
The significance of this number is how much of the stock price is covered by cash (as defined above). Any number above 10% is a pretty good cash position, when you get to the 20’s and 30’s we’re looking at serious cash pile – potentially attractive to value investors and acquirers. It is also a strong defensive characteristic. Stocks in a strong cash position are not going to go out of business any time soon, and if the share price is relatively low, make for good potential take-over candidates.
COVER
The significance of the cover number is the ease with which a company can meet its current and long-term obligations. A value of 100% means the company has enough liquid assets in hand to cover all its current and future obligations. I prefer this measure to debt-to-equity, since equity can be loaded with intangibles and over-valued assets. Over 100%, you’ve got a company that uses debt sparingly and has lots of options for its extra cash.
FREE CASH FLOW
This is money with which a company can make new investments, increase its dividends, and buy back stock. A positive number means you’re building the cash pile, a negative one means you’re eating into it. For example, uber-brand Harley Davidson looks great because its free cash flow is 9% of the stock price (given the other factors, currently a great buy), whereas Plug Power has a lot of cash, but the caveat is that it is a development company and is burning that cash for its research and product development – still potentially OK but you have to pay attention to the ramp-up of products that they bring to market.
RANKING
The stock ranking below was created as follows. I sorted by each metric and simply assigned a sequence number to each stock in the order that it was listed. I also sorted by shares outstanding in descending order to assign larger companies a higher weight. I then simply totaled the individual metric rankings for each stock, giving %Cash a double weighting – counting it twice. (There’s nothing like buying a $30 stock and getting back a $10 bill 
)
CONCLUSIONS
I already own the top 4 in the list, and also FormFactor and Nvidia – all stocks I would again buy in a heart-beat. For big-cap tech stocks, Qualcomm, Texas Instruments, and Intel look great. In a different space, I think Harley Davidson is outstanding value right now (check out the FCF), given its brand strength. Cree is a great entry right here for indirect exposure to the global warming issues, with its LED technology. Methanex is a methanol stock which is churning out cash as well. The tech stocks overall seem to be in good shape, and FormFactor in particular I think is a steal here.
In general for now I would weed out the ones with the negative free cash flow, and select from the remainder. Be careful with First Marblehead in particular. They look great as far as cash goes, but originate and package student loans. They are caught up in this whole credit-crunch business – the reason for the current depressed stock price. (Though now with the recent cash infusion and investment by Goldman Sachs, this makes the prospects now much better for this stock.) I need to review Biovail, InVentiv, Trina Solar, Mattel, and Genessee & Wyoming to better understand the reasons for the negative free cash flows, since these are currently in the portfolio.
REAP SYSTEM LAID OUT IN DETAIL – YOURS FOR FREE
The analysis in this post is one way in which I screen stocks to include in my asset allocation program called REAP – Relational Equity Allocation Program. The REAP method, researched and designed my myself, is described on the following 3 posts. It is a gold-mine for fund managers, because in the long run, it’s a guaranteed way to beat the S&P500 hands down – with the S&P500 stocks themselves! The smart ones would get it. But I don’t think any pros will bother – especially since it’s out here for free.
#1 http://stockadventures.wordpress.com/2007/06/14/reap-1-the-concept/
#2 http://stockadventures.wordpress.com/2007/06/18/reap-2-more-on-the-concept/
#3 http://stockadventures.wordpress.com/2007/07/02/reap-3-designing-a-six-pack/
Cheers and Merry Christmas
Allocator
a.k.a George Parkanyi
gparkanyi@hotmail.com
# Stock Symb Price %Cash Cover FCF
1 QLOGIC QLGC $14.62 18.2% 287% 4.3%
2 BROADCOM BRCM $26.47 15.9% 295% 1.9%
3 FOREST LABS FRX $36.52 12.4% 209% 5.1%
4 ROCHESTER MED ROCM $11.07 29.2% 338% 25.5%
5 QUALCOMM QCOM $39.44 7.8% 247% 3.3%
6 XILINX XLNX $22.34 17.7% 86% 2.6%
7 METHANEX MEOH $27.50 18.2% 43% 8.8%
8 FORMFACTOR FORM $33.39 33.9% 599% 0.3%
9 NVIDIA NVDA $35.16 7.9% 186% 4.6%
10 TESSERA TECH TSRA $42.18 11.6% 702% 2.8%
11 TEXAS INSTRMT TXN $33.80 7.7% 142% 4.6%
12 LOOPNET LOOP $15.12 15.0% 695% 0.9%
13 PLUG POWER PLUG $3.76 51.8% 961% -25.8%
14 CREE INC CREE $23.34 14.8% 258% 0.6%
15 ROFIN-SINAR RSTI $47.60 13.2% 129% 3.6%
16 MYLAN LABS MYL $13.50 29.5% 49% 0.0%
17 ATHEROS COMM ATHR $30.90 11.2% 192% 2.4%
18 FIRST MARBLEHD FMD $18.70 75.6% 61% -1.0%
19 INTEL INTC $26.96 5.2% 107% 1.4%
20 HARLEY DAVDSN HOG $47.34 9.9% 18% 9.1%
21 BIOVAIL BVF $13.45 13.1% 125% -1.1%
22 AKAMAI TECH AKAM $35.95 7.6% 144% 1.6%
23 CHINA AGRITCH CAGC $2.45 65.2% 181% -7.7%
24 MEMC ELEC WFR $91.23 4.8% 145% 2.5%
25 EBAY EBAY $34.30 3.6% 102% 2.6%
26 LANDEC LNDC $13.27 12.1% 149% 1.1%
27 MYRIAD GENETIC MYGN $48.42 9.1% 596% -0.8%
28 BUFF WILD WING BWLD $23.03 11.4% 128% 1.6%
29 HI-TECH PHARM HITK $9.66 23.5% 188% -6.1%
30 ASHLAND INC ASH $47.19 46.0% 42% -26.1%
31 CREDO PETE CRED $9.96 12.9% 93% 1.6%
32 NOKIA NOK $38.53 2.2% 44% 3.1%
33 AGILENT A $37.19 5.0% 40% 1.0%
34 GENENTEC DNA $67.90 3.9% 50% 0.7%
35 CRYPTOLOGIC CRYP $18.34 27.2% 125% -19.8%
36 FRONTIER OIL FTO $41.00 2.5% 52% 4.8%
37 MICROSOFT MSFT $36.06 2.3% 64% -0.3%
38 CERAGON NETWK CRNT $10.80 9.0% 62% -0.3%
39 FLAMEL TECH FLML $10.65 11.5% 99% -8.0%
40 BARR PHARMA BRL $54.32 4.5% 17% 1.5%
41 NATUS MEDICAL BABY $19.55 5.5% 90% 0.9%
42 PRINCETON RVW REVU $8.51 10.2% 46% -1.1%
43 PRECISION DRLL PDS $15.24 3.4% 0% 6.2%
44 SUN HYDRAULCS SNHY $26.30 4.9% 87% 1.5%
45 TRINA SOLAR TSL $49.20 10.0% 122% -8.8%
46 BAXTER INTL BAX $59.51 0.3% 23% 2.5%
47 HEARTLAND PMT HPY $27.00 3.6% 28% 2.5%
48 II-VI INC IIVI $34.73 4.5% 55% 0.5%
49 INVENTIV VTIV $29.79 14.7% 12% -18.6%
50 3M MMM $86.05 -1.2% 20% 2.1%
51 MERCK MRK $59.15 0.3% 30% 0.2%
52 FORWARD AIR FWRD $31.96 5.7% 57% -2.1%
53 MERIT MEDICAL MMSI $14.71 4.4% 35% 1.6%
54 BRIST MYERS BMY $27.98 -1.4% 24% 1.0%
55 LEXMARK LXK $35.08 -7.4% 36% 6.9%
56 HOME DEPOT HD $26.66 -27.1% 2% 21.4%
57 ABBOTT LABS ABT $58.26 -6.1% 12% 1.6%
58 FAIR ISAAC FIC $32.94 -7.6% 31% 9.0%
59 GLOBAL PAYMT GPN $43.02 3.0% 87% 0.9%
60 DREW IND DW $28.45 -0.4% 36% 5.8%
61 HEWLETT PACK HPQ $52.03 -4.6% 23% -0.8%
62 BLUE NILE NILE $72.96 2.6% 160% -1.5%
63 MINE SAFETY AP MSA $54.88 3.9% 15% -0.9%
64 STARBUCKS SBUX $21.06 -9.2% 14% 1.3%
65 EDUC DEVELPM EDUC $5.41 2.9% 36% 0.8%
66 MATTEL MAT $20.19 2.2% 10% -10.9%
67 MOTOROLA MOT $16.30 -7.1% 17% -13.4%
68 POLARIS INC PII $50.23 -15.0% 14% 3.9%
69 VULCAN MAT VMC $81.47 0.4% 2% -1.2%
70 GEN WYOMING GWR $26.00 2.6% 9% -5.2%
71 CENTR EUR DIS CEDC $59.50 -0.1% 12% -5.6%
72 PANHANDLE PHX $26.78 3.1% 4% -0.8%
73 CHESAPEAKE EN CHK $39.09 -6.6% 2% -21.0%
74 OTTER TAIL PWR OTTR $36.57 -2.7% 0% -6.9%
75 MIDDLEBY MIDD $75.21 -4.5% 3% -1.9%
76 NEW YORK & CO NWY $6.58 -34.4% 6% -13.4%
77 GRP 1 AUTO GPI $26.19 -113.5% 5% -25.3%
5 Comments
December 25, 2007 at 4:21 am
George,
You ought to be a quant. You sure do your homework and are thorough. I find it funny that we are both in the process of making lists, but lists of opposite performance. I’ve got my short list pared down to 200 stocks, but I’m looking for five slam dunks. I’ll let you know the results after Xmas.
George, I’d also like to wish you and yours a happy holiday season. Denise liked your note, and I certainly appreciate your noble gesture. You are a true gentleman, and the world is better off having people like you around.
I noticed that she hasn’t responded to it as of yet.
When you get some time, google Victor Niederhoffer. Read his bio and some of his stuff and let me know what you think. It would be worth your time to check the guy out, because I will introduce you to an online group that he has formed. These are the big boys that make the markets. I was invited in because of my experience and from the recommendation of friends and friends of friends, etc. Please keep this under your hat, and even delete this message.
I’ll try to hook you up with this group after I land on the ground there. They’re an amazing bunch of guys.
Merry Christmas.
Jeff
December 25, 2007 at 4:30 am
George,
The discussion group that I joined offered me a place at the table. All they wanted from me was a short bio. Since I never gave you a copy of my bio, here’s what I sent them:
Scott,
First of all, I would like to tell you that I’m very pleased to be considered to be included in this amazing group of people. It’s truly an honor.
Here is my Bio:
I was born in 1956 in a comfortable family. From my earliest memories, I liked to play games such as Monopoly, Chess, Checkers, and other games. Poker became my passion when I was in junior high, and I did quite well even when playing against adults. I was active in sports such as tennis, swimming, and surfing. I learned to surf by spending my entire summers in San Diego, at the beach, with my aunt.
As a kid, I also was a mad bomber, having a personal laboratory in my basement. I got involved in my first commodity trade in 1973 when I caught a piece of the big soybean move. I thought commodities were my ticket to the big time, and I blew my entire stake in a couple of months. I also learned a lot about myself. After high school, I attended Hendrix College in Conway, Arkansas and majored in Chemistry with a Math minor. I paid my tuition for college by playing a lot of poker. I was also fortunate to meet my lovely wife there, so college wasn’t a total waste of time. After graduation, I moved to Vegas for a year to grind out a living at the poker tables playing Lowball. I went out there in 1978 with a $6,000 stake, stayed a year, and came back with about $11,000 after living expenses. I discovered that poker wasn’t a good way to make a living. I moved to Chicago and was accepted to Northwestern in their chemistry department’s PhD program. I found the whole program just a bunch of hoops to jump through, so I jumped the hoops like a trained lab rat. Meanwhile, I spent most of my time having the undergrads doing my research while I was at Sportsman’s, Arlington, Hawthorne, or Maywood Park playing the ponies. I also developed a habit of playing poker in back rooms with characters that can best described as Runyonesque. My cousin was working as a runner at the CBOT at that time, and he pointed me to the Mid-Am. I bought a seat there and traded mini-contracts in wheat. I managed to not lose too much money, and I did learn the rudiments of trading. When the market closed at 1:15, I high tailed it back to school to look like I was accomplishing something. The chemistry department thought I was doing something right, because they eventually awarded me a degree. Looking back o n my college years…it was a scam, but I had the time of my life. After Northwestern, I was tired of Chicago, bought a seat on the Minneapolis Grain Exchange. My girl from Hendrix College finally married me, and we settled in comfortably in Minneapolis. I really enjoyed my time at the Grain Exchange, and had a pretty good gig going as a local. I’d buy cars of cash grain and sell futures against them. I did a lot of spreading, which was the best way for a local to make money in those days as the pit wasn’t as liquid as the Chicago markets. I worked the Minneapolis/Chicago and Kansas City/Minneapolis spreads quite often, when I sensed opportunity. About 10 years ago, I tired of the pits, but not of trading. We moved to the Sarasota area of Florida, at the beach, and I started trading from home. I’ve had my ups and downs in trading(who hasn’t), but I have had a pretty good run. I mainly trade grain spreads, and look for s tocks to short. We have an 18 year old son who graduated from Phillips Exeter Academy last year, and is in his first year at Yale. He is majoring in the Classics with an emphasis on Latin and Ancient Greek. He’s a pretty bright kid, but not very street smart. He’ll end up as a professor someday.
My lovely wife was diagnosed with ovarian cancer which has metastasized and has now spread to her liver, lungs, and pancreas. Her prognosis isn’t good, but she remains steadfastly optimistic and of good cheer.
We’ve been collecting art for the past 25 years and have built up a decent collection. We like drawings by the masters, and we also own a couple of etchings. I don’t buy paintings or lithographs, and only buy art that I like. I’ve posted some of my collection over on my blog.
I’m very passionate about music, and play a pretty mean guitar. My singing voice is pretty well shot from all of the years in the pit. I like all forms of music, with Jazz, Classical, and Country/Rock being my favorites. Since the advent of the internet, we’ve built up quite a collection of music. My son has introduced me to most of the new music out there, and from my standpoint, I’m impressed.
I’m a Freemason, and am very active in my lodge.
I’m an old school ham radio operator who still communicates using Morse Code(CW). There’s something musical about (CW), and there’s something magical about the radio spectrum. I’ve found interesting parallels with radio wave propagation and the markets. Heck, I find parallels with everything and the markets.
I still surf whenever there’s waves, and often travel to other locations to catch good waves. I will blow off trading if the waves at my beach are 6′ and glassy…that is a given.
My lovely wife tells me that my biggest shortfall is that I always say, “You wanna bet?” She feels that I quote odds too often, and that it just isn’t polite to tell someone at a fancy schmancy dinner party that “I’ll lay you 7/2 that X is going to happen.”
I will blow off a 7 course dinner at the finest restaurant in town for some good BBQ. I like sliced pork, wet.
As for being a mad bomber as a kid, I still like to play with fireworks.
I still like to sit down to a good poker game also, but finding them locally is getting harder since everyone wants to play no limit hold-em. The probability of ruin in that game is so high, and it’s too tough of a game for me to beat.
I look forward to being part of this group, and as I’ve already said, feel it’s quite an honor.
Regards,
Jeff
December 25, 2007 at 10:46 am
Fascinating – our experiences cross-sect in many ways. I’ll touch on them in future posts both here and at your blog.
Cheers,
George
December 27, 2007 at 4:53 pm
Hi Jeff,
I missed the first part of your note. Quite a while ago I read Victor’s book, and loved it. That’s what I meant when I said that I’m interested in people’s thought processes and approaches, not specific tips. Victor wrote a great book about his experiences – and I can relate, though I don’t have the trading pedigree you guys all have. I used to love chess when I was younger, and even played in tournaments for a while. Not that long ago, I also started playing on the Internet, but I don’t really have time for it and let that lapse.
It’s the same kind of mathematical, problem-solving thinking that attracts me to the markets.
Seize the opportunity to be part of this group, because I’m sure they would be very enlightening and entertaining – with great stories and great perspectives.
Cheers,
George
March 18, 2009 at 1:01 am
“The industrial situation of the United States is absolutely sound, and our credit situation is in no way critical… The interest given by all the public to brokers’ loans is always exaggerated… The markets generally are now in a healthy condition. The last six weeks have done an immense amount of good by shaking down prices… I know of nothing wrong with the stock market or with the underlying business and credit structure.”
- Charles Mitchell, Chairman of National City Bank of New York, two days before the stock market crash on October 22, 1929