People won't stop talking about the "fiscal cliff". Fiscal cliff this, fiscal cliff that and a whole lot of other negative aspects of the incident. I have yet to stumble across an article that talks about the "money making" opportunities that have arisen along with this fiscal cliff-- so I have decided to write one.
You see, every so- called major catastrophe comes with an opportunity. The problem lies in finding that opportunity and capitalizing on it instead of sitting there moaning over the negative aspects--And this is where savvy investors like you and I shine the most.
Let's do a quick run down of this "fiscal cliff" and try to dissect it.
Fiscal Cliff is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of this year (2012). Among the laws set to change at midnight on December 21, 2012 is the end of certain tax breaks for businesses.
This last line is where we (savvy investors) come in. Ok! so tax breaks for businesses will expire. What does that mean for us? It means, companies with a lot of cash on hand will do all in the power to either prolong the tax break or get ready for the alternative, either of which is good news for us.
If they (politicians) manage to prolong the tax break, that will mean that these companies with a lot of free cash flow on hand have nothing to worry about since it could be reinvested into the business, which is mostly a good thing (depending on the business). Good liquidity is a good sign of a company's financial health and good measure of profitability.
In addition, any good company has to make previsions for the worst case scenario. If the tax breaks do expire, having a lot of cash on hand wouldn't be beneficial to the company, therefore they have to get rid of it. Do you follow me!?
Getting rid of cash is a very tricky thing for a company, unless this company is publicly owned. Remember that the role of the manager of a publicly owned company is to maximize the shareholders' profit. Keeping this in mind, a manager has two options:
1) either launch a shares buy-back, which will ultimately result in capital gain for the shareholders or
2) issue dividends, which will put money in shareholders pockets. Either way, shareholders come out "winners!" and management will be rewarded, which then leads to a situation that I like to call " Everybody happy".
In the final analysis, the evidences indicate the followings: yes the "fiscal cliff" is a bad situation for our country and we should do all in our power to avoid it. BUT! you should always remember, and this goes beyond the investment scope, that regardless of the situation at hand, it always pays to look on the bright side.
Here is a list of companies with a lot of cash on hand:
1. Microsoft Corp.
- Cash and short-term investments: $62.04 billion
- LTM revenue: $73.72 million
- LTM earnings: $16.98 billion
- Market cap: $258.38 billion
- Yield: 2.60 percent .
2. Cisco Systems Inc.
· Cash and short-term investments: $48.72 billion
· LTM revenue: $46.06 billion
· LTM earnings: $8.04 billion
· Market cap: $102.21 billion
· Yield: 2.90 percent
3. Google Inc.
· Cash and short-term investments: $41.72 billion
· LTM revenue: $43.16 billion
· LTM earnings: $11.11 billion
· Market cap: $224.05 billion
· Yield: 0 percent
4. Oracle Corp.
· Cash and short-term investments: $30.68 billion
· LTM revenue: $37.12 billion
· LTM earnings: $9.98 billion
· Market cap: $154.53 billion
· Yield: 0.70 percent
5. Apple Inc.
· Cash and short-term investments: $27.65 billion
· LTM revenue: $148.81 billion
· LTM earnings: $40.13 billion
· Market cap: $623.60 billion
· Yield: 1.60 percent
A wise man once said: there's no danger in developing eyestrain from looking on the bright side.
Thank you for reading.
Comment as you see fit.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.