Alan Brochstein

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Imclone? yes

On Mar 19 12:29 PM User 379270 wrote:

> Is the number associated with LLY AFTER their recent $6 B acquisition?

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

ok, thanks...


On Mar 18 12:08 PM BS Detector wrote:

> Alan Brochstein wrote:

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

While I am aware of your point, I am unsure how to incorporate it into my analysis. If you look at the balance sheet for WMT, you will find a massive AP ($29 billion). This goes into the Current Liabilities metric of course. So, WMT is "borrowing" from its vendors, and the cash that they show is owed to them.


On Mar 18 01:41 PM Joseph Sherman wrote:

> Great article. Would you take into account favorable trade credit
> terms that Wal-Mart uses with suppliers as a substitute for cash.
> For example, much of Wal-Mart's supplies give the firm several months
> to pay for goods, Wal-Mart makes a sale, in cash or credit card,
> and holds onto the cash for a month or two before paying the supplies.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Zoltan, your assessment is correct. I am aware of the limitations of this exercise, but I believe that it actually goes a long way towards rooting out companies with the illusion of high cash balances. As transitory as it might be, I believe that you will find by looking over quarters and quarters of the relationship for a given stock, one will find that it isn't transitory though it could theoretically be so.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Deferred revenue means that the company collects cash but hasn't booked the sale. In the future, it will have a sale, but no cash associated with it. Hence, a company can have "earnings" but not see its bank balance increase. The presence of a large amount of deferred revenue vs cash tells me that the cash won't go up in the future, al lthings equal (unless they grow deferred revenue). There is also always a remote risk that the customer cancels and wants their cash back. The point is that the cash is on the books but hasn't been run through the P&L yet.

On your second comment, that is precisely what I am saying. If current assets are to fund current liabilities and they aren't converted to cash as is expected, the cash on the balance sheet, all things equal, would have to be used to pay current liabilities.

Stocks Will Continue to Erode In This Busted Economy

NWC, I offer the example of GM bonds trading at 14 cents on the dollar. While it is extreme, corporate bonds in general have been pounded. When a bond's price falls, it becomes more equity-like. At 100 (par value), a bond-holder to maturity already knows the most that they can make (the interest payments plus the return of principal). Hypothetically, if a bond investor buys a new issue that goes belly up the next day, he could be out 100% of his investment. The most he would have ever made is the interest. That is a pretty bad risk/reward scenario (though the odds would typically be very low that the investor would lose everything and so quickly, though there is that risk).

When the bond price tanks, the risk/reward ratio changes - the holder now has upside (like the equity investor). Since technically the bond holder has additional downside protection in the event that there is a bankruptcy (equity investor wiped out before bond investor loses a penny of principal or interest), you can probably appreciate that scenarios exist, especially in distressed situations, where the bond becomes superior to stocks. In the case of GM, why would you buy equity at any price if you could buy debt trading at 14 cents on the dollar? While GM stock could "double" or "triple" in a "good" scenario, the bond would probably do even better. The answer is complex, but I believe that it has to do with how one values an option (being long GM is a way out of the money option, but volatility is high and expiration is way out there) and the potential for the reorganization to not wipe out equity holders if it happens. As corporate bonds have become cheaper, stocks have discounted this phenomenon. As long as pressure remains on corporate bonds, there should be pressure on stocks as well.

So, I am not sure I am answering your question exactly as you expect, but yes, sometimes it makes sense to buy deep discounted debt and hedge it by shorting the stock. In a broader sense

Stocks Will Continue to Erode In This Busted Economy

I am long and I didn't say that the next move is down the drain, just that I can more clearly see a rationale for this move continuing for some time. I am not an investment advisor, but you wouldn't qualify to be my client if I were due to your irrational expectations about the necessity or ability to predict the very short-term.

Stocks Will Continue to Erode In This Busted Economy

Are you blind? I disclosed at the end longs only and said in the article that I am long. I remain long in my heart and my ass just not my brain. I was hopeful that maybe someone would have a stronger criticism than yours.

The market is extremely oversold, like never before. My contribution wasn't a suggestion to go and sell today but rather that we should open our mind that "the" bottom may just lie further off in the future and lower than we might ordinarily expect.




On Nov 24 09:37 AM DonSuper wrote:

> U WISH U STUPD SHORT

Stocks Will Continue to Erode In This Busted Economy

I have learned that "cash" isn't always "cash", as sometimes it is spoken for. In the case of software companies, they book sales with large up-front cash before they are actually able to book the revenue (deferred revenue). Honestly, I am not sure why AAPL has so many liabilities - they aren't listed on my balance sheet in the normal detail. The FACT is that while they have a ton of cash, they also have a ton of liabilities. If you are an AAPL investor, you should be aware, so why don't you explain?

AAPL is on the list solely because it has a high market cap. If you notice, the leverage is among the lowest of all the companies. You will also note that AAPL has a relatively low P/TB. Instead of thinking that I am picking on AAPL, which I assume you do, you should take comfort in its relatively better position. Leverage in general ranges from a mathematical low of 1.0 to sometimes astronomical levels (though negative equity can lead to negative numbers). So, to answer your point, AAPL does have low leverage, but it does have significant liabilities nonetheless.

Stocks Will Continue to Erode In This Busted Economy

Andy, you are correct about the cash being $24.5 billion, but the book value (or common equity) is actually less: $21 billion. How? Equity is Assets less Liabilities. Total assets for AAPL are $39.6 billion (cash plus inventory, receivables, etc.). Total liabilities are $18.5 billion roughly ($14 billion short-term, which includes payables and $4+ billion long-term). With a market capitalization of $73 billion, the ratio is 3.5.

Cancer Stocks Hammered Once Again

I don't know the company, but it sure looks interesting. Technically, it would be nice to hold 1.75. The company is seemingly deficient in cash - it would appear that there will be either an equity or debt offering this year. If they become profitable as forecast this year, the stock could get some attention - diagnostics have been hot.

Cancer Stocks: Lagging Again

I am no longer submitting Cancer Stocks Weekly to Seeking Alpha, but I will be back with a Quarterly in early October. For those who are interested in continuing to see it (free of charge), email me and I will be happy to send it directly to you on a weekly basis. Alternatively, I will continue to submit it to biohealthinvestor.com.

Cancer Stocks Hammered Once Again

Thanks for the comment and the compliment. Thanks also for the information. Contact me by phone or email if you would like to discuss your ideas.

Cancer Stocks Slide Again

I wanted to point out an error in the article - GNVC is developing a pancreatic cancer treatment (not vaccine).

Cancer Stocks Plunge Following ASCO Meeting

Miles, I have a negative bias towards small biotech companies, especially ones like this that have a terrible history of underperforming the stock market, generating losses and diluting with equity issuance. That isn't to say that one might find a diamond in the garbage can, but, I think that one is actually more likely to find a diamond in the garbage can. If one of these companies is creating a truly novel, revolutionary treatment, I personally believe that an investor would have plenty of time to buy later at a higher price and still make a ton of money.

Note, I don't have an opinion specifically on Insmed other than my general observations in the above paragraph.