Bloomberg is reporting that more than 2,000 companies around the world have cash balances exceeding their market capitalization. That’s more than eight times as many cash rich companies as when the last bear market bottomed in 2002.
With these companies, a $1 share is worth more than $1, just in terms of the cash held by the company. The actual business of the company is thrown in for free.
And these aren’t tinpots but rather big global companies that hold more cash than they’re worth:
Bank of New York Mellon Corp. in New York, Danieli SpA in Buttrio, Italy and Seoul-based Namyang Dairy Products Co. hold more cash than the value of their stock and debt as the slowing world economy wiped out $32 trillion in capitalization this year. Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39 percent sell at a discount to shareholder equity, data compiled by Bloomberg show.
Of course it’s not a one-way bet. The market is pricing the companies expecting falling profits or big losses that start to eat into their reserves.
But that’s always a danger with stock investing – you don’t normally get to buy a $1 for less than $1 to calm your nerves.
Apple and Microsoft: two cash-rich tech aristocrats
Besides the ‘free’ companies, the article also looks at Microsoft and Apple, two companies in the S&P 500 that have more than $20 billion in cash and securities and less than $2 billion in debt (excluding financial companies).
Now that’s not more than their market caps ($192 billion buys you Microsoft and $82 billion secures Apple). But it’s a very healthy cushion to fall back on. Both companies look excellent buys to me.
Techs never really recovered from the dotcom bust, in terms of getting their old pre-bubble ratings back. The tech sector is currently about as cheap as it’s ever been, yet as a group these giants still enjoy deeply embedded advantages and are churning out billions in cash from relatively small capital bases and workforces.
Here in the UK I’ve been buying shares in the Polar Capital Technology Investment Trust, which holds a wide range of tech shares from around the world and is overweight in the big US companies. It has just bounced off an all-time low, and must now be even cheaper, relatively speaking, then when I started buying, given the fall of sterling versus the dollar over that time.
Of course if you’re based in the US you can buy these cheap tech shares direct and not worry about the currency risk at all. I envy you!
The economy is going to get worse before it gets better, but I think it’s very hard to make a bear case at these levels, with dividend yields well over stupidly expensive government bonds in the US and the UK. You must make your own mind up, of course.
Bloomberg says the cash rich equivalents in 2002 rose 115% over the next year.
Food for thought. I’ll ferret out some cash-rich UK companies for an article in the next few days, so please do subscribe for free to ensure you get the article when it’s written.