Though corporate bond issuance is currently robust, spreads are still quite high with the yield on double-A bonds more than 3.5% higher than comparable Treasuries. This is better than last year but significantly worse than the historical average. For bonds that are rated less than double-A, terms get even tougher and demand is correspondingly weaker.
I ran a screen this weekend (all numbers are as of Saturday morning) to identify those companies with big cash stockpiles. Rather than look at the absolute value of cash, I looked for those companies whose price to cash ratios appear to be quite favorable. I divided market cap by cash to obtain the rankings. In order to narrow the list down to a small number, I looked for companies where the stock price to cash ratio was 0.5 or less. With the government backstopping everything in sight, I felt it was reasonable to consider "cash" to be cash on hand combined with short-term investments.
The following twelve companies were picked up in this screen:
|Symbol||Name||Price to Cash||Last Price||Market Cap||Cash Holdings||PE||Price To Book|
|BHO||B&H OCEAN CARRIERS LTD.||0.17||$1.87||$12,800,000||$73,210,000||18.07||0.11|
|ESGR||Enstar Group Limited||0.27||$64.40||$857,700,000||$3,144,600,000||9.79||1.34|
|FORTY||Formula Systems (1985) Ltd.||0.39||$4.64||$61,200,000||$156,760,000||5||0.35|
|GS||GOLDMAN SACHS GROUP||0.47||$124.33||$57,414,000,000||$122,404,000,000||25.65||1.03|
|GSIG||GSI Group, Inc.||0.19||$0.83||$34,600,000||$183,270,000||2.11||0.09|
|IBKR||Interactive Brokers Group, Inc.||0.11||$15.80||$640,500,000||$5,935,620,000||6.79||1.2|
|NNI||NELNET, INC. CLASS A||0.42||$10.00||$493,000,000||$1,187,120,000||16.95||0.76|
|PNSN||Penson Worldwide, Inc.||0.07||$7.90||$199,600,000||$2,852,300,000||18.71||0.75|
|TMM||GRUPO TMM S.A.||0.24||$0.73||$40,300,000||$168,440,000||0.52||0.24|
|VOCL||VocalTec Communications Ltd.||0.20||$0.40||$3,000,000||$14,990,000||0.82||0.29|
Note that Goldman Sachs (GS) has the largest cash hoard by far on this list. It is ironic that, despite all the cash they have, they are willing to dilute existing shareholders by raising more cash in a $5 billion common equity offering so they can pay back the government's TARP funds. I guess we have yet another tone-deaf bank CEO...
Aside from the issues surrounding Goldman, though, a screen like this is intended to highlight stocks that are selling for less than the cash on their books. In essence, then, this is a value screen that should identify stocks that are cheap. Note that this view of "cheap" doesn't necessarily equate to low Price-Earnings ratios though the Price-to-Book ratios are pretty much all quite reasonable for this batch of stocks.
In retrospect, it seems that using a Price-to-Cash criterion of 0.5 is rather extreme; hence the small list. Next week I will look into expanding this criterion to accommodate a Price-to-Cash ratio of 1.0 but leave out some of the micro-caps. This should leave us with a more manageable list of companies.