Novice Investing - Cash Rich Bargain Hunting

Date: Friday 05th 2008f September 2008 05:35:41 PM

Cash Rich Bargain Hunting - 06/15/2006

By: Novice Investing Staff

We had been a big believer in investing on companies with positive net cash; that is companies that have more cash on hand than long-term debt. This is important in time of crisis, as those cash can cushion the fall of the company's business. With a rising interest rate environment, it is also particularly important to have more bullets to chew on and use this positive net cash to be more aggressive in winning customers. When you can find companies with its market cap of 30% of its cash or more, you would find quite a bargain. As the market falls lately, you will find more and more of these phenomenon. Do not fall into the trap by buying companies with less than stellar balance sheet! Plenty of bargains around. Let's look at it one by one.

Audiovox Corp. (VOXX). This is quite a small company and thus, might be more volatile in the near term. However, with $ 271.84 M in market capitalization and with $ 166 M of positive net cash in its balance sheet, it is worth a look. Audiovox net cash is about 61% of its market capitalization. Analysts expect Audiovox to earn $ 0.08 per share this fiscal year. Even if Audiovox is losing $ 1- $ 2 per share per year, its big cash cushion will enable it to withstand operating losses for at least three years. Are you getting a bargain here? It depends. If you think Audiovox can get at least a slight profit, share price would have risen from this point. It seems like most investors are expecting otherwise.

IDT Corp. (IDT) This telecommunication company has been down for so long despite its stellar balance sheet. With its $ 1.25 Billion, IDT spots a $ 511.3 M of positive net cash, or 40.9% of market capitalization. This cash pile, however, has been dwindling. For the fiscal year ending on July 31st 2003, for example, IDT spots a $ 975 M of positive net cash or 78% of current market capitalization. Furthermore, the company is expected to lose $ 1.49 per share for the current fiscal year and $ 1.04 for the next fiscal year. If you think the trend will continue, IDT share price is unlikely to rise due to its declining cash balance.

Sigmatel Inc. (SGTL). With current market cap of $ 158.5 Milion and positive net cash of $ 51 Million, this former i-Pod component supplier may be due for a snapback. However, a year ago, positive net cash stood at $ 141 Million or 89% of its net cash. Clearly, cash balance has deteriorated even worse than the stock price. For the year, Sigmatel is expected to lose $ 1.50 per share, or $ 52.7 Million, wiping out its entire net cash. Sigmatel is definitely a purely speculative investment, despite its current stellar positive net cash.

Portal Player Inc. (PLAY). Similar to Sigmatel, this i-Pod component supplier had been hammered as Apple choose yet another supplier for its i-Pod line. It recently announced plan to cut 14% of its workforce, in a bid to restore profitability. With market capitalization of $ 257 Million, Portal Player possesses 191 M of positive net cash, or 74% of its market cap! For the current fiscal year, the company is expected to post a small profit of $ 0.13 per share. Be aware that this profit estimation may go down further as Sigmatel has demonstrated. At current condition, Portal Player might be a safer bet than Sigmatel. Even if it reports a staggering $ 50 M ($2.03 per share) loss for this fiscal year, the company still have three year of cash cushions to weather the storm.

Earthlink Inc. (ELNK). With its eroding dial-up subscribers, Earthlink is in a race against time to acquire customers who wish higher-speed internet connection. Its recent project, Earthlink has embarked in an initiative to provide cities with Wi-Fi access, which the company claimed to be a cheaper way to provide internet connection. Earthlink spots a market capitalization of $ 1.07 Billion with $ 505 M of positive net cash, roughly 47.2 % of its market capitalization. For the current year, the company is expected to lose 9 cents a share, which is a chump change compared to its positive net cash. If you feel that Earthlink new initiatives will succeed, profit would certainly be visible, thus boosting the share price. This is a much safer play than say, Sigmatel.

Websense Inc. (WBSN). Not sure what this software company does but it does have a $ 347 M of positive net cash, roughly 34% of its market capitalization. Furthermore, investor can expect this cash pile to grow even further as the company is expected to report a profit this coming fiscal year.

Infospace Inc. (INSP). Trading near 52 week low, Infospace spots a $ 682.61 M market capitalization. Meanwhile, positive net cash stands at $ 418 Million, or 61.2% of market capitalization.

If you notice, our list are all small capitalization companies, having a market cap of $ 1.5 Billion or less. These types of stocks are normally more volatile than the market and caution should be used when investing in these companies.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Infospace Inc. (INSP) or any other securities.

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