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So Who's Got The Money? This Screen Gives A Clue

 April 15, 2009 12:48 AM

There have been a number of portfolio managers who have been quoted as saying that the safest companies to invest in these days are the ones that don't need to continually go to the credit markets to fund their businesses. These are companies with substantial piles of cash that should allow them to ride out this recession without having to pay exaggerated borrowing costs in today's credit markets.

Though corporate bond issuance is currently robust, spreads are still quite high with the yield on double-A bonds more than 3.5% higher than comparable Treasuries. This is better than last year but significantly worse than the historical average. For bonds that are rated less than double-A, terms get even tougher and demand is correspondingly weaker.

I ran a screen this weekend (all numbers are as of Saturday morning) to identify those companies with big cash stockpiles. Rather than look at the absolute value of cash, I looked for those companies whose price to cash ratios appear to be quite favorable. I divided market cap by cash to obtain the rankings. In order to narrow the list down to a small number, I looked for companies where the stock price to cash ratio was 0.5 or less. With the government backstopping everything in sight, I felt it was reasonable to consider "cash" to be cash on hand combined with short-term investments.

The following twelve companies were picked up in this screen:

SymbolNamePrice to CashLast PriceMarket CapCash HoldingsPEPrice To Book
BHOB&H OCEAN CARRIERS LTD.0.17$1.87$12,800,000$73,210,00018.070.11
ESGREnstar Group Limited0.27$64.40$857,700,000$3,144,600,0009.791.34
FORTYFormula Systems (1985) Ltd.0.39$4.64$61,200,000$156,760,00050.35
GSGOLDMAN SACHS GROUP0.47$124.33$57,414,000,000$122,404,000,00025.651.03
GSIGGSI Group, Inc.0.19$0.83$34,600,000$183,270,0002.110.09
IBKRInteractive Brokers Group, Inc.0.11$15.80$640,500,000$5,935,620,0006.791.2
MSMORGAN STANLEY0.39$25.35$27,239,000,000$70,364,000,00015.660.75
NNINELNET, INC. CLASS A0.42$10.00$493,000,000$1,187,120,00016.950.76
PNSNPenson Worldwide, Inc.0.07$7.90$199,600,000$2,852,300,00018.710.75
PXLWPixelworks, Inc.0.13$0.59$7,800,000$61,210,0001.061.69
TMMGRUPO TMM S.A.0.24$0.73$40,300,000$168,440,0000.520.24
VOCLVocalTec Communications Ltd.0.20$0.40$3,000,000$14,990,0000.820.29

Note that Goldman Sachs (GS) has the largest cash hoard by far on this list. It is ironic that, despite all the cash they have, they are willing to dilute existing shareholders by raising more cash in a $5 billion common equity offering so they can pay back the government's TARP funds.

Aside from the issues surrounding Goldman, though, a screen like this is intended to highlight stocks that are selling for less than the cash on their books. In essence, then, this is a value screen that should identify stocks that are cheap. Note that this view of "cheap" doesn't necessarily equate to low Price-Earnings ratios though the Price-to-Book ratios are pretty much all quite reasonable for this batch of stocks.



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