How Will Apple and Intel Use All That Cash?

 |  Includes: AAPL, AMAT, INTC, MU, WDC
by: Sean Farhy

The Apples (NASDAQ:AAPL) and Intels (NASDAQ:INTC) of the world are becoming more and more cash rich with each passing quarter. One way for these giants to grow revenue and profits in aggregate is by creating strategic alliances that seek to find hidden values in each one of these company’s niche markets. I’m not saying that a stock buyback is a wrong thing to do with their cash. I just think that it only goes so far. But all in all this is a good problem to have.

All the stocks below offer the investor the potential for decent growth at relatively attractive current values. Each one of the stocks below has a relatively low P/E with future P/Es expected to fall as profits continue to rise. All but one stock has a PEG below 1x, which I feel gives the investor great prospects going forward. The other reason why I think that these stocks may be a compelling buy is that they all have relatively small market caps with large cash positions and low debt on the books.

Market Cap
Cash / Share
Stock Price
Cash / Price
Applied Material
Micron Technology
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Micron (NASDAQ:MU) and SanDisk (SNDK) have P/Es and Future P/Es of under 9 and 12 respectively, with ample cash on their balance sheets. As of last quarter both companies have started to increase their respective cash flow positions. I view this event as a big positive if they both can continue with this trend. The other reason I like both Micron and SanDisk is that they have approximately $1.5 billion in debt. To me, low debt rates eliminate a wide array of risks with the uncertainty of future interest rates. These stocks, like Research in Motion (RIMM), offer the aggressive investor a decent amount of upside. It is important to note that both Micron and SanDisk are volatile and do move around. If one does choose to enter into a position, buying on dips or dollar cost averaging over a several months may be the best way to get in some of these stocks, while still keeping some dry powder for that “just in case” scenario. The potential upside targets for the two stocks are $11 ½ and $52 respectively, with downward support of $6 ¼ and $32 ½.
Applied Materials (NASDAQ:AMAT) like SanDisk has an extremely attractive PEG rate, which I think could drive the stock into the $20 per share range in the not-too-distant future. AMAT sits on $2 a share in cash and virtually no debt, which in this day and age is quite a refreshing find. The downside on AMAT is at $10 ¼, and like Micron and SanDisk a buy on dips or a dollar cost average strategy is in my opinion is the best way to invest in these stocks.
AMAT, MU, and SNDK all sit on large amounts of cash, which increases the likelihood for a share buyback. That tends to support the underlying share price. I highly doubt that you will see these companies introduce a dividend, or in AMAT’s case, increase its dividend substantially anytime soon. That leaves me with one question still unanswered. Apple sits on $28 billion plus in cash and Intel sits on more than $15 billion on cash and short-term assets. How are these companies going to deploy their cash?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.