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.
Microsoft tops the list, with $31bn in net cash (cash minus debt). Google isn’t far behind at $30bn.
Cisco and Apple are next, with $24bn to $25bn in net cash. Intel deserves an honorable mention, with $16bn 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 dotcom boom. Today, Dell trades at a forward P/E ratio of just eight. Said another way, Dell is 92% cheaper today than it was 11 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 $12bn in cash – about half its stock market value. It has $5bn in debt. So it’s sitting on $7bn 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 six.
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 (Nasdaq: MSFT) |
$31bn | $207bn | 7.7 |
| Google (Nasdaq: GOOG) |
$30bn | $148bn | 11.8 |
| Cisco (Nasdaq: CSCO) |
$25bn | $118bn | 8.2 |
| Apple (Nasdaq: AAPL) |
$24bn | $229bn | 12.8 |
| Intel (Nasdaq: INTC) |
$16bn | $102bn | 7.7 |
| Dell (Nasdaq: DELL) |
$7bn | $24bn | 6 |
Big tech is downright cheap. And it’s generally ignored. I like to see both of those things.
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This article
was written by Dr. Steve Sjuggerud for the free daily investment email
DailyWealth
.