So who's got the money? This screen gives a clue

There have been a number of portfolio managers who have been quoted as saying that the safest companies to invest in these days are the ones that don't need to continually go to the credit markets to fund their businesses. These are companies with substantial piles of cash that should allow them to ride out this recession without having to pay exaggerated borrowing costs in today's credit markets.

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
MS	MORGAN STANLEY	0.39	$25.35	$27,239,000,000	$70,364,000,000	15.66	0.75
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
PXLW	Pixelworks, Inc.	0.13	$0.59	$7,800,000	$61,210,000	1.06	1.69
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.

If I had to pick one stock on this list that looks kind of interesting, I guess I would have to go with Interactive Brokers (IBKR). In terms of its credibility as a value stock, it has a modest PE, very low Price-to-Sales (as is common for financial stocks), low PEG and a modest Price-to-Book ratio. Its Debt-to-Equity ratio is also low while its Cash Flow Yield is quite high. As a financial stock, Interactive Brokers has seen its stock plunge from the $30's to the teens. The company, not being a bank, has no investments in any toxic assets and makes its money on the volume of trades that it handles. As markets perk up, so should revenues at this company. In the meantime, it has a nice pile of cash and should be able to comfortably ride out this market downturn.

Next time...
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.

Disclosure: none