Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Given the constant uncertainty of the stock market, it is worthwhile to consider holding a few names that may be able to limit your risk. One such idea is companies with relatively large cash holdings.

Companies holding more cash are more likely to survive dips in the business cycle, and since this is known to investors, they are less likely to sell off in a broader market scare.

With this in mind, we screened for all stocks that are undervalued relative to free cash flow, with P/FCF below 10. Among this list, we found those with high cash relative to operating expenses. To measure this, we calculated the average quarterly operating expense over the last year for these companies and then compared this number to the cash holdings of the firms.



All companies listed below have more than 2x the cash for their average quarterly operating expense, translating into coverage of more than 2 quarters of average quarterly operating expenses without the need for additional revenue.

Are you keeping your portfolio’s risk in mind? Use this list as a starting-off point for your own analysis into less risky opportunities.

List sorted by cash/avg. operating expense.

1. Central Fund of Canada Limited (NYSEMKT:CEF): Industrial Metals & Minerals Industry. Market cap of $6.36B. P/FCF at 5.39. Current cash holdings at $77.18M vs. average quarterly operating expenses over the last four quarters at $2.67M. Cash/Avg. Quarterly Operating Expenses at 28.9, i.e. the company can go 28.9 quarters without generating revenue and still cover the average quarterly operating costs. The stock has had a couple of great days, gaining 7.35% over the last week.

Recent Developments: Announced completing sale of 16.15M Class A shares, raising gross proceeds of over $360M (April 2011).

2. Marvell Technology Group Ltd. (NASDAQ:MRVL): Semiconductor Industry. Market cap of $10.03B. P/FCF at 9.28. Current cash holdings at $2.93B vs. average quarterly operating expenses over the last four quarters at $677.68M. Cash/Avg. Quarterly Operating Expenses at 4.3, i.e. the company can go 4.3 quarters without generating revenue and still cover the average quarterly operating costs. The stock has lost 27.52% over the last year.

Recent Developments: Announced an additional share repurchase program of $500M of common shares after announcing a $500M repurchase program in August 2010 (Mar. 2011).

3. SanDisk Corp. (NASDAQ:SNDK): Semiconductor Industry. Market cap of $11.78B. P/FCF at 8.44. Current cash holdings at $2.85B vs. average quarterly operating expenses over the last four quarters at $841.31M. Cash/Avg. Quarterly Operating Expenses at 3.4, i.e. the company can go 3.4 quarters without generating revenue and still cover the average quarterly operating costs. The stock has had a couple of great days, gaining 6.41% over the last week.

Recent Developments: Announced Q2 2011 revenue guidance in line with analysts’ estimates (April 2011). Announced FY11 revenue guidance in line with analysts’ estimates (Feb. 2011).

4. Kohlberg Kravis Roberts & Co. (NYSE:KKR): Asset Management Industry. Market cap of $3.81B. P/FCF at 5.29. Current cash holdings at $1.43B vs. average quarterly operating expenses over the last four quarters at $440.67M. Cash/Avg. Quarterly Operating Expenses at 3.3, i.e. the company can go 3.3 quarters without generating revenue and still cover the average quarterly operating costs.

5. CA Technologies (NASDAQ:CA): Application Software Industry. Market cap of $12.32B. P/FCF at 9.98. Current cash holdings at $2.58B vs. average quarterly operating expenses over the last four quarters at $817.25M. Cash/Avg. Quarterly Operating Expenses at 3.2, i.e. the company can go 3.2 quarters without generating revenue and still cover the average quarterly operating costs. The stock has gained 2.94% over the last year.

6. ASML Holding NV (NASDAQ:ASML): Semiconductor Equipment & Materials Industry. Market cap of $17.68B. P/FCF at 9.2. Current cash holdings at $2.70B vs. average quarterly operating expenses over the last four quarters at $913.69M. Cash/Avg. Quarterly Operating Expenses at 3.0, i.e. the company can go 3.0 quarters without generating revenue and still cover the average quarterly operating costs. The stock has gained 15.27% over the last year.

7. Legg Mason Inc. (NYSE:LM): Asset Management Industry. Market cap of $5.66B. P/FCF at 6.94. Current cash holdings at $1.73B vs. average quarterly operating expenses over the last four quarters at $587.20M. Cash/Avg. Quarterly Operating Expenses at 3.0, i.e. the company can go 3.0 quarters without generating revenue and still cover the average quarterly operating costs. The stock is a short squeeze candidate, with a short float at 6.28% (equivalent to 5.97 days of average volume). The stock has gained 18.73% over the last year.

8. Teradyne Inc. (NYSE:TER):
Semiconductor Equipment & Materials Industry. Market cap of $3.29B. P/FCF at 6.71. Current cash holdings at $806.80M vs. average quarterly operating expenses over the last four quarters at $298.79M. Cash/Avg. Quarterly Operating Expenses at 2.7, i.e. the company can go 2.7 quarters without generating revenue and still cover the average quarterly operating costs. The stock has gained 35.57% over the last year.

9. Novellus Systems, Inc. (NASDAQ:NVLS): Semiconductor Equipment & Materials Industry. Market cap of $3.08B. P/FCF at 9.74. Current cash holdings at $671.25M vs. average quarterly operating expenses over the last four quarters at $262.36M. Cash/Avg. Quarterly Operating Expenses at 2.6, i.e. the company can go 2.6 quarters without generating revenue and still cover the average quarterly operating costs. The stock has gained 26.35% over the last year.

10. Millicom International Cellular SA (MICC): Telecom Services - Foreign Industry. Market cap of $11.65B. P/FCF at 9.74. Current cash holdings at $1.22B vs. average quarterly operating expenses over the last four quarters at $480.60M. Cash/Avg. Quarterly Operating Expenses at 2.5, i.e. the company can go 2.5 quarters without generating revenue and still cover the average quarterly operating costs. The stock is exhibiting strong upside momentum--currently trading 8.71% above its SMA20, 15.04% above its SMA50, and 13.68% above its SMA200. The stock has had a couple of great days, gaining 7.2% over the last week.

11. Lam Research Corporation (NASDAQ:LRCX): Semiconductor Equipment & Materials Industry. Market cap of $6.09B. P/FCF at 8.2. Current cash holdings at $1.26B vs. average quarterly operating expenses over the last four quarters at $590.79M. Cash/Avg. Quarterly Operating Expenses at 2.1, i.e. the company can go 2.1 quarters without generating revenue and still cover the average quarterly operating costs. The stock has gained 15.91% over the last year.

*Cash holdings and operating expense data sourced from Yahoo! Finance, P/FCF and all other data sourced from Finviz.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 11 Undervalued Stocks With Large Cash Holdings Relative to Operating Expenses