Merely An Observation

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THIS IS NOT INVESTMENT ADVICE!!

Finance One of our correspondents who shares my measured optimism concerning the financial markets offers the following observations:

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Companies which have less than 20% debt/equity ratio and at least

$1B in cash, a track record of profitability, and ratios which suggest

they are adequately capitalized to meet their short and long-term

obligations are:

GOOG

AAPL

CEO

QCOM

MON

RIMM

LFC

GLW

ADBE

BEN

TCK

DOX

WFR

SAY

MSFT

Google and Apple each have north of $10B in cash and zero debt.

——————————————————————

The screen that was run to identify them was:

Cash > $1B

Debt/Equity > 10%

Return on Equity > 5%

Return on Assets > 5%

Current Ratio > 2

Quick Ratio > 1

Earnings Growth Next 5 Years > 5%

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AGAIN.  THIS IS NOT INVESTMENT ADVICE

I am not invested in any of the above listed companies.  pl

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24 Responses to Merely An Observation

  1. Dave of Maryland says:

    This shows our relative differences. You have had a successful life & have the money to show for it, thus this post. Not that many years your junior, I have had a hand-to-mouth life with only a struggling business for my accomplishment. “Investment advice” is incomprehensible to me.
    The financial strength of these companies is unquestioned. As that is so, they are at risk of having their stock prices bid up to unsustainable levels. Just as the prices of houses were bid up. There is a lot of hot cash that needs to go somewhere. Anywhere, really.
    Another way of looking at the present financial mess is to observe that nations are now being forced to re-establish control over their currencies. Iceland will doubtless serve as the example. Forced to throw out their phony currencies & establish genuine ones.
    How can this be done / how will it be done, one way or another? It seems to me that countries will total up what they have in hard assets (factories, raw materials, etc.), divide it by their population, and issue currency accordingly.
    Such is a way in which we can get rid of the “hot cash”, aka the fake money, problem. Because, right now, as existing financial markets collapse, there are fewer & fewer places for this money to go. Which means that, day by day, there is more and more hot cash that needs to go somewhere.
    Fake cash has already bid up the price of oil, as you perceptively remarked some months ago. There is a real danger it will bid up the price of foodstuffs, thus creating mass starvation next spring. It can bid up the price of Google & destroy the internet. Fake money is incendiary. Fake money is the problem. Like a raging inferno, it needs to be extinguished.

  2. Will says:

    ” How can this be done / how will it be done, one way or another? It seems to me that countries will total up what they have in hard assets (factories, raw materials, etc.), divide it by their population, and issue currency accordingly. ”
    dave of maryland
    interesting view of money. not the gold standard but the dave standard. everything else is fake money.
    Now the Will standard. As long as there is plenty of green ink and paper (or LCD screens & juice) we are in business. Our currency is backed up the soft power of the Civitas Americum Foederatis (U.S.A.). Namely, its, agricultural, manufacturing power and its technological creative power plus its hard military power. This is what feeds us, powers us and persuades the rest of the world to trade w/ us and desire our paper and electronic securities.
    for too long the history of the nations has been at the mercy of their posession of gold & silver. For instance, the Athenian navy that confronted Xerxes was perchance built up b/c of a chance discovery of silver mines in Attica.
    But, the British Elizabeth I did not have the Spanish precious metals yet she prevailed over their Aramada.
    The money supply can and should be adjusted to avoid recession and to prevent inflation- a tightrope walk b/n deflation & inflation.

  3. Curious says:

    Healthy balance sheet and competitive edge? that is sooo old skool.
    … there is always “too big to fail”, followed by “we need bail out” gambit.
    It’s the new economy.
    btw, the world seems to be breathing again. After a $2.5Trillion bail out package. (EU+US+Asia) Whew… The hang over from that debt is going to be gigantic.
    I need a drink.
    PS. at least the stock market have some pulse again.

  4. Walrus says:

    “How can this be done / how will it be done, one way or another? It seems to me that countries will total up what they have in hard assets (factories, raw materials, etc.), divide it by their population, and issue currency accordingly.”
    With respect Dave, this is where we were under the Bretton Woods Agreement – currencies were fixed in a trading band against Gold from 1944 to 1971.
    In theory and in practice, currencies were backed by a nation’s gold reserves and ultimately debts between nations could be settled by physical gold transfers.
    The system broke down in 1971 under the strain of financing the Vietnam war – there was simply not enough American gold to cover the currency issued and on August 15, 1971 President Nixon “Closed the Gold Window” and suspended convertibility of U.S. dollars into gold.
    The U.S. dollar was pegged at around $35 per ounce, it is now somewhere around $800, which gives you an idea of the size of the strains involved.
    This is the reason that the standard fails – there is simply not enough Gold around to finance the economic growth levels we would like. We can re engineer it, revalue “old” dollars into “new dollars” at a rate of one thousand to one and suchlike, but it doesn’t change the problem.
    It is also worth noting that, in my opinion, if the International financial bailout arrangements fail, your wish will be granted, causing a global depression, as we return to exchanging gold for oil, corn for computer chips and and coal for iron ore.
    My Economics Professor at Business School was adviser to the Prime Minister at the time the Russians invaded Afghanistan, he was called in the next day to advise on the economic consequences if America responded militarily. His immediate response was that we would likely return to the gold standard if that happened.

  5. Patrick Lang says:

    All
    Whoa! Anti-capitalists? pl

  6. John Howley says:

    John Authers on ft.com points out that Friday’s low was still well above previous market “bottoms” as measured by the S&P price-earnings ratio. (Eg. 1987)
    So, the drop was fast and sudden but only had the effect of wiping out over-pricing. Stocks are still not under-priced which would be a “buying opportunity.”
    Will stocks drop more? Who the h*ck knows. Events are being driven by (1) hedge fund gyrations that are massive and mostly invisible and (2) policy changes.

  7. Dave of Maryland says:

    Anti-capitalist?
    Nah! Schools fed us Marx’s Greatest Hits back in the ’70’s. It was either go to ‘Nam or go to school. For many of us, there was no good choice.
    There has been a lot of talk lately about Jacobins. There were Sans-culottes, too.
    All praise to Wiki. For forty years, up to this moment, I thought the phrase was taken literally. They were not naked from the waist down. There was only Marianne, naked from the waist up. It’s not a revolution unless someone’s naked.

  8. Patrick Lang says:

    Dave of Maryland
    “the choice was between going to school and going to Nam”
    Funny how only those who were not there call it “Nam.”
    That was the choice you had? Funny. I had lots of men in my commands who did both and they didn’t whine about it either. pl

  9. Dave of Maryland says:

    Back to topic, one day’s rise in the market does not a recovery make.
    Thursday/Friday this week we discover if the actions taken from September 24 through October 15 are of lasting value. Pure theory, as well as my own prior experiences, suggests we may be disappointed. I would like to be wrong.
    Middle of next week is another touchy time.

  10. Mad Dogs says:

    “Merely An Observation
    THIS IS NOT INVESTMENT ADVICE!!”

    Hmmm…Pat, have you ever thought of going into the investment advice business?
    Do you need a partner (puleeeze!)?
    Next time the market rallies almost 1,000 points, could you…ahmmm…NOT…advise us again…wink, wink?

  11. Will says:

    i did both. went to skool, went to nam earned a CIB was in combat for 364 days, then came back to skool. Got a B.S. in Physics and a Law degree.
    Mom wouldn’t buy me a motorcycle after my freshman year where i had a 3.8 average so i showed her and volunteered for the draft.
    but i was a dumbass on the most important exam on my life, the one that asked questions liked “do you like to take long walks in the woods or stay inside and read books?”
    I don”t think it would have made much difference anyway, it would have been infantry anyway. Then at Fort Benning they announced there would be a four week layover before NCO school started. We had a choice of KP (Kitchen Police) or airborne school. To a man, every single one of us overcame our fear of heights!!! It was absolutely amazing.
    I wound up on the DMZ, the hottest zone, but in one way a blessing b/c mostly no civilians just a moonscape cratered by B-52’s w/ mostly unseen NVA. Was I scared? I have to be truthful and say no. I”m one of those dumbass people that has always thought i was special and bulletproof and it wasn’t going to happen to me. there’s got to be a name for that kind of behavior- stupidity. Not that i volunteered for any special risks or tempted fate other than the one stupid act of volunteering for the draft!

  12. SAC Brat says:

    I’ve often thought of many people in the financial services field as lampreys. The way they have attacked companies and left them operating paycheck-to-paycheck under massive debt amazes me. How anyone thought this would be good long term for workers or a nation is beyond me.
    Maybe Sharia law should be used on Wall Street.

  13. Jose says:

    Col, those are the only American companies that, IMHO, produce anything of value to the rest of the world.
    Last year I traveled to Europe, South and Central America and Southeast Asia and can confirm, those damn iPods are everywhere.
    Maybe GM can learn something from…

  14. We’ve just witnessed the largest insider trading robbery in human history (not by Col. Lang, of course(!), but by the men putting in the fix, fixing he fix, if you will…) — a going away gift from El Chimperor to his friends. (Think none of them made money?) Stocks are still wildly overpriced for a post-Peak Oil economy, by the way. Welcome to the bumpy plateau.

  15. wisedup says:

    for SAC Brat, why were the f/u’s allowed to go on? Why did Adam Smith’s invisible hand miss completely? The answer is something that PL might like to expound upon re. the military, the degrees of separation between action and feedback. That is, if your actions do not directly expose you to the results of your actions then the system breaks down. Given the complexity of modern social systems, how to recover this immediacy is an urgent goal — not lawyers but the real world smacking you in the face.

  16. dlb says:

    Perhaps we’ve experienced the back of Adam Smith’s invisible hand.

  17. fred says:

    Perhaps a post late but to taxpayers this is ‘vae victus’. Of course there is nothing a little inflation and taxing the rich won’t cure!

  18. Sean-Paul says:

    Where are the dividends? I personally think NWL is a steal here, with a 6.6 div, low PE, plenty of cash and something to sell that people actually “need.” Just my two cents.

  19. Curious says:

    wow, GM really do plans to stick it to the public.
    talking about business welfare era.
    http://news.yahoo.com/s/nm/20081014/bs_nm/us_generalmotors_bankcruptcy_1
    General Motors (GM.N) said on Tuesday bankruptcy for the firm is not an option and called for coordinated federal action to assist the ailing U.S. automobile industry.
    “Bankruptcy is not an option that GM is considering,” Maureen Kempston Darkes, Group Vice President and President, GM Motors Latin America, Africa and Middle East, said at a news conference in Dubai.

  20. Matthew says:

    Col: Not anti-capitalist, just realistic. I invest and have no complaints, but I think the market is not efficient, the business cycle is real, and debt-expansion only provides temporary wealth.

  21. shepherd says:

    My two cents is that that screen pretty much defines a successful technology company with a psuedo or real (but not necessarily permanent) monopoly in some area. Other strong companies do not have that financial profile because they are not subject to the same risks, have not enjoyed the same margins at some point in time, or simply do not need to retain so much cash to fuel ongoing operations and acquisitions. I’d also be wary of that list, insofar as it contains a number of companies that are actively trying to destroy one another.
    Full disclosure: I am a vendor for several of those companies. I own shares in none of them.

  22. Martin L.. Pebler says:

    Sir,
    It seems that we are now in hock to Communist China. Richard Nixon must be rolling in his grave!
    What will happen if the Commies demand collateral in repayment for our huge loans, loans that we can never hope to repay?
    Will we be required to surrender Hawaii, Guam and Samoa to our new creditors? What if they demand that Alaska be turned over to them?
    This may the beginning of a major global resource war, a war that we might not be able to win.
    God help us all!
    ———-
    Martin L. Pebler
    SFC, U.S. Army (Ret.)
    Special Forces Medic

  23. Forex broker says:

    I think that it is sure great that the stock market is breathing again, but even in the hard times it was strange to invest or calculate investments in such a way. The data is nice though, we still have a few empires running 🙂

  24. Mark Boles says:

    Marty this is Mark, we have not spoken in a while. I have to know how
    is my rifle?

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