Which ETFs Are Holding Cash-Rich Companies?

There are very few issues that seem to evoke universal agreement. You have the ubiquitous acceptance by writers, analysts and advisers that commodities must appreciate in value. And you also have the widespread belief that Jon Stewart got the better of Jim Cramer. (On that front... yes, Stewart did make Cramer look silly.)

In the world of highly questionable finance, there's one more item that seems to rate as the geometric equivalent of a "given." Companies with a lot of cash on hand are well-positioned for economic recovery.

Recently, Joseph Calhoun listed the top 15 companies with the most cash on their books. Some people may have noticed that MORE THAN HALF happened to be large-cap technology corporations. And a few big-cap tech names have recently seen their stock shares upgraded by analysts -- companies like Intel (INTC) and Apple (AAPL).

Yet "cash on hand" shouldn't be viewed in a vacuum. Some of the cash-rich corporations are saddled with debt. Others have made notoriously questionable acquisitions (i.e., spent the cash unwisely), while others have long histories of sitting on a mountain without getting much for that decision.

When speaking of debt, for example, Toyota Motor (TM) is seriously leveraged. Its net cash level is negative. And rumors about the company asking for dollars from the Japanese government abound. Obviously, "cash on hand" as a stand-alone indicator may need some fine tuning.

If one really likes the idea of owning companies that report having lots of cash... AND if you account for things like debts/obligations/trouble spots... you still can't ignore the financial strength of big-cap tech. Names that win the day include Google (GOOG), Intel, Microsoft (MSFT), Cisco (CSCO) and Apple (AAPL).

The easiest way to gain exposure to these 5 companies is through the Nasdaq 100 proxy, Powershares QQQ (QQQQ). Approximately 36% of the quad-Qs movement is attributable to these 5 corporations.

Another strong contender is the iShares Goldman Tech Index Fund (IGM). All of these companies are in the top 10 holdings for IGM, and they collectively account for 33% (1/3) of IGM's movement. Both QQQQ and IGM have performed on par with one another in 2009, but if you're looking for greater "tech purity," IGM might need to be your port of call.

There are several ETFs that are outperforming generalized tech. Most notably, iShares Goldman Semiconductors (IGW) and State Street SPDR Semiconductors (XSD) have substantial year-to-date games. Those who are betting on a more rapid recovery may be moving in the semi space.

However, if you are more wary about the recession's duration, and you're more enamored with "cash-on-hand" survival, you'll want to stay with the broader tech companies. Semis may be a bargain, but they may also have more difficulties managing another "leg down."

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc. , a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

Comments

[Anthony B:]

in this environment, I like knowing the theoretical limit of the bottom should be cash/share. (for companies with no debt)

Mar 16 10:52 PM

[Jha Khosla:]

Take a look at Jim Cramer's MSFT recommendations over a 2 year period. You can see that he flip-flopped quit a bit and likely lost viewers money.

www.stocktagger.com/20...

Mar 17 03:42 AM