maverick
13-12-2007, 05:00 AM
Most traders in Mumbai will be a worried lot today. The US Fed cut interest rates by 25 bps last night-a figure disappointing to many in the US and East Asia which have opened in a Sea of Red. Few realise that interest rate cuts do not solve underlying economic problems, they only extend them. Look at Japan, a Nation with Zero interest rate for 15 years and still in recession.
Now most US Funds which have been blitzed in their home countries are finding reasons to invest in the ramshackle, rag-tag nations like India. A look at the piles of garbage and filth lying around your million dollar homes will convince you of what I mean.
People are Buying growth at PE multiples exceeding 22 times FY09 earnings estimate and seem happy about it. The US sells for 15 times CY07 estimated earnings. A two year forward 50 per cent premium on US valuations is unjustified, simply because the source of capital is the US.
A word about growth. A $ 12 trillion economy (in this case the US), growing at 2 per cent per annum still exceeds by a mile a $ 800 bn economy growing at 8 or 9 per cent per annum.
And what is this growth that we talk about in India? Power Plants, Residential and Commercial Real Estate to be built up over the next 5 to 10 years but added to Order Books of poorly capitalised companies, with all the Execution Risks, Political Uncertainty and Natural Disasters that strike this country so often?
Where are these projects to be funded from? Mundra Ports, Adani Power, Reliance Energy and the likes quoting at fancy PEs of 50 or even more. Concerns like RNRNL and RPL with no Revenue streams and still being traded at atrocious multiples with no earnings or a project in sight?
Worse, we have a scenario where Sebi is putting duds like Ispat and such other stocks into FNO? You have the scenario of a major disaster of the like seen in 2000 and which will at some stage get repeated in 2008.
Look for Companies with cash-these concerns have steady, solid growth, carry zero debt and have hordes of cash in hand and viola you have an Abbott Labs, Alfa Laval, Bosch twins, BASF, Astra Zeneca, Ingersoll Rand and Pfizer.
These are the concerns favoured in the US and there is no reason why they should not be favoured here..so if you are a believer in Cash then look no further beyond this article.
Cash Is King
Much of the turmoil in the markets this past summer was blamed on a "liquidity crisis." Liquidity is often just a fancy way of saying "cash." Thus, "liquidity crisis" really means that companies grown used to being able to borrow lots of cash at attractive interest rates cannot do so anymore.
There probably are a number of reasons for the crisis. The most obvious one is that lenders suddenly realized that either the borrower might not be able to repay the loan; or that the lender wasn't charging enough for the loan (or both). Why this dawned on the lenders so suddenly, when they should have known it all along, is one of those mysteries of finance that make the markets interesting.
As we've mentioned several times in recent issues, there has been a significant build-up in corporate debt over the last few years. And most lenders still are not getting paid enough to fully compensate them for the risks they are taking on.
The companies that will fare the best if the credit crunch intensifies are those that do not need credit; in other words, those that have large amounts of cash. With that in mind, we looked for companies with lots of cash, little debt and good businesses but that are still in some form of a turnaround. We thought the companies discussed below looked particularly interesting in this regard.
Broadcom (nasdaq: BRCM - news - people ) is a semiconductor maker that is targeting several juicy growth markets, including digital television, Bluetooth, Wireless LAN and FM products. But it is the firm's aggressive push into the cellphone market that has especially piqued investors' interest, as the company appears to be winning market share from Texas Instruments (nyse: TXN - news - people ). Broadcom recently introduced a new chip that some analysts speculate is a year ahead of its competition.
Charles Schwab (nasdaq: SCHW - news - people ) found itself floundering in the wake of the bursting technology bubble. Investors turned away from active stock trading while at the same time competitors aggressively cut commissions. In mid-2004, founder Charles Schwab came out of retirement to once again lead the company that bears his name. Lowering fees, emphasizing money management services and offering new products have led to a string of solid quarterly operating gains. Schwab's cash position was significantly bolstered when it sold its U.S. Trust wealth management business to Bank of America (nyse: BAC - news - people ) for $3.3 billion.
Corning (nyse: GLW - news - people ) has transformed itself from a marketer of housewares into a leading provider of optical fiber as well as precision glass used in liquid-crystal displays. It also has a presence in the environmental and lifesciences industries. The company experienced roller coaster results over the last decade, as the telecom industry went through a boom and bust cycle, but recently it has reported more stable growth and profitability.
Molina Healthcare (nyse: MOH - news - people ) provides managed care services that coordinate the delivery of health care services primarily to government-sponsore d programs for low-income markets, such as Medicaid and the State Children's Health Insurance Program. The company currently operates in California, Indiana, Michigan, New Mexico, Ohio, Texas, Utah and Washington. In September, it expanded into the Missouri market via an acquisition. We expect gradual expansion into the other 41 states. Despite the great opportunity in this sector, Wall Street has largely ignored the company.
Motorola (nyse: MOT - news - people ) has a long history of successful innovation in electronics. After considerable success with cellphone handsets, Motorola has stumbled recently in that sector. However, we expect it to rebound shortly with some new cellphone products. And Motorola is more than a handset company. It is using its formidable balance sheet to fund advances in set-top boxes/modems, wireless infrastructure and radio frequency ID products.
Microsoft (nasdaq: MSFT - news - people ) is widely recognized as the most successful software company of the computer age. But Microsoft has diversified into other tech sectors. The company also has a strong foothold in game consoles and Internet portals. After going basically sideways for the last seven years, Microsoft's stock is finally showing signs of renewed life. At a forward P/E of 15 and with an outstanding balance sheet, Microsoft appears to be an attractive investment for long-term investors.
Pfizer (nyse: PFE - news - people ) was riding high back when the pharmaceutical companies were one-decision, buy-and-hold stocks. The company's $90 billion acquisition of Warner Lambert and $60 billion purchase of Pharmacia positioned Pfizer as the world's largest pharmaceutical company. But results weakened as the FDA lengthened the drug approval process, and generics have risen to capture market share. Furthermore, Pfizer's pipeline hasn't shown much in the way of obvious blockbusters. But the balance sheet is impeccable, and outstanding cash flow supports tremendous R&D and possibly a biotechnology acquisition.
Sanmina-SCI (nasdaq: SANM - news - people ) is a contract manufacturer of printed circuit boards that remains well off its former glory. The company has restructured and sold off assets raising a good chunk of cash. It should be well positioned for a rebound in the outsourced electronic manufacturing sector. However, Sanmina still has a fairly heavy debt load, and so it is the most speculative of the stocks discussed in this article.
Now most US Funds which have been blitzed in their home countries are finding reasons to invest in the ramshackle, rag-tag nations like India. A look at the piles of garbage and filth lying around your million dollar homes will convince you of what I mean.
People are Buying growth at PE multiples exceeding 22 times FY09 earnings estimate and seem happy about it. The US sells for 15 times CY07 estimated earnings. A two year forward 50 per cent premium on US valuations is unjustified, simply because the source of capital is the US.
A word about growth. A $ 12 trillion economy (in this case the US), growing at 2 per cent per annum still exceeds by a mile a $ 800 bn economy growing at 8 or 9 per cent per annum.
And what is this growth that we talk about in India? Power Plants, Residential and Commercial Real Estate to be built up over the next 5 to 10 years but added to Order Books of poorly capitalised companies, with all the Execution Risks, Political Uncertainty and Natural Disasters that strike this country so often?
Where are these projects to be funded from? Mundra Ports, Adani Power, Reliance Energy and the likes quoting at fancy PEs of 50 or even more. Concerns like RNRNL and RPL with no Revenue streams and still being traded at atrocious multiples with no earnings or a project in sight?
Worse, we have a scenario where Sebi is putting duds like Ispat and such other stocks into FNO? You have the scenario of a major disaster of the like seen in 2000 and which will at some stage get repeated in 2008.
Look for Companies with cash-these concerns have steady, solid growth, carry zero debt and have hordes of cash in hand and viola you have an Abbott Labs, Alfa Laval, Bosch twins, BASF, Astra Zeneca, Ingersoll Rand and Pfizer.
These are the concerns favoured in the US and there is no reason why they should not be favoured here..so if you are a believer in Cash then look no further beyond this article.
Cash Is King
Much of the turmoil in the markets this past summer was blamed on a "liquidity crisis." Liquidity is often just a fancy way of saying "cash." Thus, "liquidity crisis" really means that companies grown used to being able to borrow lots of cash at attractive interest rates cannot do so anymore.
There probably are a number of reasons for the crisis. The most obvious one is that lenders suddenly realized that either the borrower might not be able to repay the loan; or that the lender wasn't charging enough for the loan (or both). Why this dawned on the lenders so suddenly, when they should have known it all along, is one of those mysteries of finance that make the markets interesting.
As we've mentioned several times in recent issues, there has been a significant build-up in corporate debt over the last few years. And most lenders still are not getting paid enough to fully compensate them for the risks they are taking on.
The companies that will fare the best if the credit crunch intensifies are those that do not need credit; in other words, those that have large amounts of cash. With that in mind, we looked for companies with lots of cash, little debt and good businesses but that are still in some form of a turnaround. We thought the companies discussed below looked particularly interesting in this regard.
Broadcom (nasdaq: BRCM - news - people ) is a semiconductor maker that is targeting several juicy growth markets, including digital television, Bluetooth, Wireless LAN and FM products. But it is the firm's aggressive push into the cellphone market that has especially piqued investors' interest, as the company appears to be winning market share from Texas Instruments (nyse: TXN - news - people ). Broadcom recently introduced a new chip that some analysts speculate is a year ahead of its competition.
Charles Schwab (nasdaq: SCHW - news - people ) found itself floundering in the wake of the bursting technology bubble. Investors turned away from active stock trading while at the same time competitors aggressively cut commissions. In mid-2004, founder Charles Schwab came out of retirement to once again lead the company that bears his name. Lowering fees, emphasizing money management services and offering new products have led to a string of solid quarterly operating gains. Schwab's cash position was significantly bolstered when it sold its U.S. Trust wealth management business to Bank of America (nyse: BAC - news - people ) for $3.3 billion.
Corning (nyse: GLW - news - people ) has transformed itself from a marketer of housewares into a leading provider of optical fiber as well as precision glass used in liquid-crystal displays. It also has a presence in the environmental and lifesciences industries. The company experienced roller coaster results over the last decade, as the telecom industry went through a boom and bust cycle, but recently it has reported more stable growth and profitability.
Molina Healthcare (nyse: MOH - news - people ) provides managed care services that coordinate the delivery of health care services primarily to government-sponsore d programs for low-income markets, such as Medicaid and the State Children's Health Insurance Program. The company currently operates in California, Indiana, Michigan, New Mexico, Ohio, Texas, Utah and Washington. In September, it expanded into the Missouri market via an acquisition. We expect gradual expansion into the other 41 states. Despite the great opportunity in this sector, Wall Street has largely ignored the company.
Motorola (nyse: MOT - news - people ) has a long history of successful innovation in electronics. After considerable success with cellphone handsets, Motorola has stumbled recently in that sector. However, we expect it to rebound shortly with some new cellphone products. And Motorola is more than a handset company. It is using its formidable balance sheet to fund advances in set-top boxes/modems, wireless infrastructure and radio frequency ID products.
Microsoft (nasdaq: MSFT - news - people ) is widely recognized as the most successful software company of the computer age. But Microsoft has diversified into other tech sectors. The company also has a strong foothold in game consoles and Internet portals. After going basically sideways for the last seven years, Microsoft's stock is finally showing signs of renewed life. At a forward P/E of 15 and with an outstanding balance sheet, Microsoft appears to be an attractive investment for long-term investors.
Pfizer (nyse: PFE - news - people ) was riding high back when the pharmaceutical companies were one-decision, buy-and-hold stocks. The company's $90 billion acquisition of Warner Lambert and $60 billion purchase of Pharmacia positioned Pfizer as the world's largest pharmaceutical company. But results weakened as the FDA lengthened the drug approval process, and generics have risen to capture market share. Furthermore, Pfizer's pipeline hasn't shown much in the way of obvious blockbusters. But the balance sheet is impeccable, and outstanding cash flow supports tremendous R&D and possibly a biotechnology acquisition.
Sanmina-SCI (nasdaq: SANM - news - people ) is a contract manufacturer of printed circuit boards that remains well off its former glory. The company has restructured and sold off assets raising a good chunk of cash. It should be well positioned for a rebound in the outsourced electronic manufacturing sector. However, Sanmina still has a fairly heavy debt load, and so it is the most speculative of the stocks discussed in this article.