Who’s got the cash these days?
Nobody here in Florida… Every other homeowner (one in two) is “underwater” here – their property is worth less than their mortgage. And one out of four Florida homeowners is currently delinquent on his mortgage payments.
Nobody in government has the cash, either… From the local level to the national level, governments are more indebted than ever.
So who’s got the cash? It’s Corporate America…[ad#Google Adsense 336×280-IA]Microsoft tops the list, with $31 billion in net cash (cash minus debt). Google isn’t far behind at $31 billion.
Cisco and Apple are next, with $24 billion to $25 billion in net cash. Intel deserves an honorable mention, with $16 billion in net cash.
The thing is, this “dead cash” makes these tech giants look more expensive than they really are…
Big-name tech stocks are cheap today. They’re as cheap as they’ve been since the late 1980s, based on their forward price-to-earnings (P/E) ratios. But when you subtract out their cash, these companies get “stupid cheap.”
Take shares of Dell Computer, for example… Dell traded at a P/E ratio of over 100 back in 1999, during the dot-com boom. Today, Dell trades at a forward P/E ratio of just 8. Said another way, Dell is 92% cheaper today than it was eleven years ago.
And that’s not taking into account Dell’s huge pile of cash. Subtract that, and Dell is even cheaper…
As of its most recent quarterly results, Dell had over $12 billion in cash – about half its stock market value. It has $5 billion in debt. So it’s sitting on $7 billion in net cash. If you subtract that from Dell’s market value, its shares are trading at a lowly forward P/E ratio of just 6.
Is Dell going out of business in the next six years? Well, it’s priced as if it is…
I’m not saying you should buy Dell – but it has the cash. All the companies above do. And when you subtract out their huge net-cash piles, they’re crazy cheap. As a group, the average forward P/E ratio of those tech companies is in the single digits.
|Stock||Net Cash||Market Cap||Fwd P/E after Cash|
|Microsoft (MSFT)||$31 billion||$207 billion||7.7|
|Cisco (CSCO)||$25 billion||$118 billion||8.2|
|Apple (AAPL)||$24 billion||$229 billion||12.8|
|Google (GOOG)||$30 billion||$148 billion||11.8|
|Dell (DELL)||$7 billion||$24 billion||6.0|
|Intel (INTC)||$16 billion||$102 billion||7.7|
Big tech is downright cheap. And it’s generally ignored. I like to see both of those things.
Once a legitimate uptrend appears to confirm this idea, I’ll be a buyer of big tech.
Source: Daily Wealth