maz

The 15 Most Cash Rich Companies

mkreisel,

You make the classic mistake of assuming that all debt is equal but it isn't. Debt on GM's balance sheet is completely different from that at a utility company (like Berkshire's Mid-American which holds 90% of Berkshire's debt. All utilities are funded with debt because of the royalty like stream of their revenues. This makes complete sense as debt funding is a heckuva lot cheaper than equity & the revenue streams are preductable way into the future. Contrast that with tech companies that have to re-invent themselves every 5 years or so or lose their revenue streams - they have to be very careful about using debt & need cash to invest in new ideas or acquire new ideas.

Also it is important to know interest coverage & leverage ratios - net debt in isolation is a pretty useless measurement


On Mar 13 02:35 PM mkreisel wrote:

> If we include debt, things look very differently:
>
> Ticker, debt, net cash
> XOM, 9425, 22582
> CSCO, 6848, 22683
> AAPL, 0, 25647
> BRKA, 36882, -11343
> PFE, 17283, 7272
> TM, 118626, -95745
> MSFT, 0, 20298
> GOOG, 0, 15846
> RDSA, 23269, -8081
> WYE, 11739, 2806
> IBM, 99925, -21018
> JNJ, 11825, 957
> INTC, 1988, 9855
> HPQ, 20458, -9203
> ORCL, 10238, 408
>
> Now things look quite different!
>
> In addition, many companies are burdened with massive pension obligations,
> the stuff that did GM and Bethlehem Steel in. For example, IBM has
> 19452 million on its balance sheet; XOM 20729 million.
>
> BRKA also has a maximum of 67 billion derivatives exposure, including
> 37 billion in equity index puts, 19 billion in CDS, and 18 billion
> in muni bond insurance.
>
> PFE has just squandered its cash horde on that panic deal with WYE.
> When the deal closes for good, PFE will have a monstrous debt load
> and very little cash left.
>
> So if you really like company with lots of cash, AAPL, CSCO, MSFT,
> GOOG, INTC, and XOM are your best choices.

Pfizer Trading Well Below Its Intrinsic Value

Interesting valuation but what makes you confident that Pfizer can sustain past growth when several of their largest blockbusters have lost patent protection recently or are coming off patent in the next 4 years? Patent protection is a two edged sword (20 years is usefully 9 to 12 years because of long development lead times) because the more success (eg Lipitor) the greater the urgency to find replacements once the patent expires. I'm not necessarily disagreeing with your valuation (although I am more conservative) but I don't see how a regression analysis is a substitute for future business analysis to support the growth assumptions. That method might be more suitable to Coke or Bud's business model.

Small nitpick: "intrinsic value of $38.50. With PFE trading at around $25, the margin of safety is greater than 50%" - this is a 35% margin of safety as % is based on valuation - or 50% + upside