GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[DanS]

Well, there are some American companies that have a ton of cash lying around, but we can't pick them up on the cheap. For, instance MSFT has $36 billion lying around, but their p/b is 7. Expensive cash!

INTC has $9 billion on hand, but a p/b of 5.

Really VOD is in the same boat as MSFT and INTC, because they have $160 billion in intangibles. I can't imagine those intangibles are worth that much.

[Ted Striker]

Well that at least makes me feel good to see that the big boys have some cash laying around.

Did Sony show up in your cash screen? They are NEVER cheap though.

[TCO]

Dan, how do you look at cash reserves?

My impression was that the street is pretty cognizant of this. (already factored into prices). For instance not valuing a company less than cash unless there are large liabilities...or for growth companies like Novartis, applying a little bit of a penalty (both because the cash is not the best return compared to the general business and because excess cash makes the company harder to acquire hostiley and makes it easier for the management to make poor acquisitions, etc.

[DanS]

Sony has $7 billion on hand and costs $37 billion. For comparison, Matsu****a has $10 billion on hand and costs $26 billion.

GP: yes, the market is generally cognizant of this item, but in select circumstances gets it wrong. Right now, I view cash as a boon for some companies--it should allow them to make strategic acquisitions on the cheap. That's part of the reason I'm buying COMS--they are in a market in which they should be able to use their cash to very good effect and which should tide them over to better times. Cash for some companies (MSFT) is an almost irrelevant item. In still others, it may be detrimental. MC looks like it is putting a lot of money into low performing, but liquid assets, when it would be beneficial to them to diversify their customer base worldwide. I just can't figure out some of these Japanese companies. MC should be doing the X-Box, not MSFT!

Anyway, to summarize, cash is only good if you can spend it wisely.

[Ted Striker]

Thanks DigitalS.

[pchang]

Don't just look for huge cash at big companies. Look at smaller companies with some cash in tech, biotech, etc. If they play their cards right, they can offer much more bang for the buck in using their cash to make good acquisitions.

[TCO]

Originally posted by pchang
Don't just look for huge cash at big companies. Look at smaller companies with some cash in tech, biotech, etc. If they play their cards right, they can offer much more bang for the buck in using their cash to make good acquisitions.

Why are you so taken with this? I would much rather have companies concentrate on core operations and only do acquisitions for good reasons. There is plenty of cash out there to acquire companies. You don't need to have it already in the coffers...and conversely, this may not be the best place for that money to sit (natural owners). Little biothechs have a cash pile to see tthem through the trials. If nothing pans out, they go home. They need to concentrate on thier core mission, not be distracted by acquiring neighbors.

[Colon™]

Dan, I’m surprised you can put this together in the evenings with a partner, I thought you’d need a fully-fledged team for it these days.

Are you searching for a distributor or will you handle orders yourself?

Regarding cash, you ought to consider short-term liabilities as well. For instance, having a billion or five in cash means nothing if the firm has tax liabilities of the same amount that has to paid in a month or so.
In short, you’d better look at the current ratio (current assets minus receivables at long term divided by short term liabilities) or quick ratio. (current ratio minus inventories divided by sort term liabilities)

IMO a firm with a lot of excess cash isn’t necessarily a good firm to invest in, because it could point to a lack of ambition or imagination and because there’s a meagre return on cash.

[Sten Sture]

Originally posted by Colon
IMO a firm with a lot of excess cash isn’t necessarily a good firm to invest in, because it could point to a lack of ambition or imagination...

Or serious business risks on the horizon that makes management very nervous about not having dollars.

Strength of the dollar is demonstrating international conviction that the US is still the safest place to be in business and will recover quickest from this "little" pause in hyper growth. (not that I am cynical about it.) It is unusual to have this much strength when we are growing cash levels so quickly, but it just shows how slow the velocity of money has become recently. All of the cash in the world won't make a difference if it isn't being used and turned over. As is the case right now.

[Roland]

"Why has the Dollar proven so strong versus the Euro? Everybody's predicting a meltdown, but it hasn't done it yet. Explanations?"

Because the dominant "market" perception is still that the US economy is fundamentally healthy. Well, it is, you just have to dig some percentage points into GDP to get to those fundamentals...

For us a steady euro in the 0.9-1 region would be perfect. Trouble is, once the slide starts in earnest, it will be brutal.

Btw, Sten: I heard or read that some non-US CBs are buying treasuries like crazy. Is that true ? If so, what's the reason ? Recycled dollars from the Fed flooding ?

Saras:

"=eventual closures.... even more problems at financial institutions... After this is over, US will be a beautifully deleveraged economy, hopefully having learned a lesson in Macro 101 ... "

Don't be so naive. You know that when the US is deleveraged, Wall street will start playing the game from the start.

"*runs towards Winkler Bunckersgesellschaft GmbH bunker*"

Now there's a solid business... bunkers...

Sten:

"Or serious business risks on the horizon that makes management very nervous about not having dollars."

Or having overborrowed due to fears the junk bond market will fold and they won't have access to funds later on.

"It is unusual to have this much strength when we are growing cash levels so quickly..."

Another btw, the Fed liquidity injection has pretty much moved out of M1, but it looks like it has transgressed into m2-m1 or m3-m2. Is this just coincidence ? I found it a bit surprising that after the withdrawal of extra funds, the larger aggregates didn't react at all...

[Ted Striker]

GDP data out today.

Party at Roland's!!! Bring your own Bier!!!

Sten Stenish confused and still adjusting to the modern data.

[Roland]

US GDP ? I thought it was due wednesday ?

edit: yes, wednesday.

And what do mean with the Bier ? When I invite people I provide the beer. That's a matter of honour, you cultureless yank.

[Ted Striker]

Come on! Kentucky Fried Chicken is culture! Everybody loves KFC, dammit!!!

Actually Bring Your Own Beer is something alot of younger Americans do when they have parties and they can't afford alot beer. (Or are too young to legally buy it).

Maybe I misheard the information then about GDP.

In other news, GM has agreed to sell Hughes DirecTV to EchoStar. News Corp (Fox) dropped the bid after getting pissed at GM for taking so long. I believe it's an all stock deal worth almost 26 billion.

My predictions of it actually being approved by the Feds? Not a chance in hell!

http://news.excite.com/news/ap/011029/05/gm-hughes

[DanS]

Bringing your own beer is a very good tradition. You ought to try it, Roland. For instance, we have "beers around the world" parties, where each person gets a letter of the alphabet and has to buy a beer whose name begins with the letter.

A good time had by all.

[Roland]

We only do that with wine etc, but NOT WITH BIER!!!