Skip to main content

More cash, less debt = stock market gains?

Today there were a couple of posts about how tech stocks are currently especially attractive because they hold plenty of cash and tend to have little debt. Paul Kedrosky initially caught my eye with his post "Tech Cash is King" which in turn pointed me to a story on Bloomberg by Eric Martin.

I ran a screen tonight that looked at both cash and debt. Specifically, I screened for a Price-to-Cash ratio under three, a Debt-to-Equity ratio under three and a Market Cap greater than $2.5 million. Based on these criteria, I obtained a list of 136 stocks.

Judging from our list, it is absolutely true that many tech stocks do seem to have lots of cash and little debt. What also became apparent as I went through the list is that there are also a lot of pharmaceutical companies that meet these criteria. Below is a shortened list that should give you a general flavor of this screen's result:

SymbolNamePricePEPrice To SalesPrice To BookDebt To EquityCash
ADPTAdaptec, Inc.$2.9050.892.330.81No Debt$371,210,000
AIRVAirvana,Inc.$5.8119.112.632.24No Debt$228,370,000
BBNDBigBand Networks, Inc.$5.9941.382.12.8No Debt$174,630,000
BMRNBioMarin Pharmaceutical Inc.$12.4042.984.274.581.7976$559,970,000
CBSTCubist Pharmaceuticals, Inc.$16.396.842.323.220.9616$409,020,000
CCMPCabot Microelectronics Corporation$27.1524.381.871.450.005$223,100,000
CNCCENTENE CORPORATION$19.3610.480.261.690.5279$480,390,000
COHRCoherent, Inc.$18.35120.330.770.77No Debt$199,880,000
CRDNCeradyne, Inc.$19.634.880.740.80.1927$221,420,000
CRSCARPENTER TECHNOLOGY CORP$18.023.650.420.990.3583$296,700,000
CYMICymer, Inc.$28.1521.511.691.5No Debt$283,290,000
DELLDell Inc.$10.638.720.354.860.4444$9,092,000,000
DRIVDigital River, Inc.$33.4422.453.272.030.0146$500,330,000
EHTHeHealth, Inc.$16.8929.783.622.63No Debt$150,630,000
EIXEDISON INTERNATIONAL$27.737.660.650.971.1249$4,250,000,000
ELNKEarthLink, Inc.$7.234.250.831.760.5769$486,560,000
ENDPEndo Pharmaceuticals Holdings Inc.$17.898.61.691.880.3296$782,190,000
ENEREnergy Conversion Devices, Inc.$16.3915.372.051.070.5017$433,770,000
ESGREnstar Group Limited$71.4011.0718.581.510.6364$3,144,600,000
FAROFARO Technologies, Inc.$15.6518.731.251.230.0013$105,460,000
FORRForrester Research, Inc.$20.9116.141.911.52No Debt$213,430,000
HLITHarmonic Inc.$6.819.911.741.53No Debt$327,160,000
HLTHHLTH Corporation$11.544.423.062.561.417$630,220,000
HSHEALTHSPRING, INC.$9.574.510.250.70.314$285,500,000
HUGHHughes Communications Inc$17.2137.250.331.041.7102$203,820,000
INFAInformatica Corporation$13.9024.372.723.460.6209$460,930,000
IPXLImpax Laboratories, Inc.$5.5417.51.552.010.0376$119,980,000
ITGINVESTMENT TECHNOLOGY GRP$21.418.351.251.20.12$352,960,000
LDKLDK SOLAR CO., LTD$7.555.920.581.10.6884$338,910,000
LXKLEXMARK INTERNATIONAL INC$17.956.80.311.750.7988$973,300,000
MIRMIRANT CORPORATION$13.362.230.640.550.6991$2,035,000,000
MKSIMKS Instruments, Inc.$17.0727.21.230.860.0005$278,870,000
MLNXMellanox Technologies, Ltd.$10.2313.412.71.360.0041$181,010,000
MOHMOLINA HEALTHCARE, INC.$20.539.320.181.10.3917$577,030,000
MRXMEDICIS PHARMACEUTICAL$13.2173.971.451.240.2805$343,880,000
NCRNCR CORPORATION$9.817.530.33.680.0159$711,000,000
NIHDNII Holdings, Inc.$14.337.340.611.461.2274$1,325,250,000
NTAPNetApp, Inc.$18.8460.11.653.890.8282$2,460,870,000
NTGRNETGEAR, Inc.$12.5723.290.551.04No Debt$203,010,000
NVRNVR, INC.$504.0028.340.741.950.1531$1,147,640,000
OMCLOmnicell, Inc.$8.7623.491.121.21No Debt$120,440,000
ORBORBITAL SCIENCES CORPORATION$15.1113.630.681.750.3152$328,310,000
SAYSATYAM COMPUTER SERVICES ADR$1.891.610.320.380.0102$1,147,400,000
SEPRSepracor Inc.$13.503.221.222.220.2093$691,630,000
SIGMSigma Designs, Inc.$12.2712.481.511.04No Debt$119,710,000
SNWLSonicWALL, Inc.$5.6263.931.321.08No Debt$105,450,000
SONOSonoSite, Inc.$19.0716.241.341.420.6295$279,140,000
SPSSSPSS Inc.$30.6716.51.862.670.7109$305,920,000
TECDTech Data Corporation$26.2810.820.050.760.2098$528,020,000
TEXTEREX CORPORATION$11.6717.420.120.690.8111$484,400,000
TSLTRINA SOLAR LIMITED$12.875.830.40.770.3415$132,220,000
TSRATessera Technologies, Inc.$13.79145.732.741.52No Debt$276,500,000
UTEKUltratech, Inc.$13.6126.912.41.630.002$158,500,000
VPHMViroPharma Incorporated$4.995.981.650.580.3782$275,840,000
XIDEExide Technologies$4.716.410.10.791.4021$148,410,000

The articles today discussed how tech has outpaced all other sectors in stock price gains thus far this year in part due to the attractiveness of their strong balance sheets. Given what we see in the table above, I was curious how the pharmaceutical sector has fared in comparison to tech.


The chart above compares a tech ETF (XLK), a pharma ETF (XPH) and a biotech ETF (XBI). You can see that tech has indeed rallied more strongly in 2009 but it is also apparent that the pharmaceutical sector in general held up much better than tech during the severe stock market decline in 2008.

Pharmaceuticals benefit not only from their cash holdings and lack of debt. It is also true that they are generally considered a defensive sector due to the tendency for demand for their products to remain steady even during economic downturns. These strong balance sheets, however, must also play a part in why they are viewed as attractive stocks during tough times.

Disclosure: none

Comments

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, TradingStockAlerts.com and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at Trade-Radar.com

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …