Apple and Four Other Companies with Solid Balance Sheets
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Businesses with no debt and lots of cash usually make good investments over the long term. The combination allows ample room for expansion into new areas and acquisitions, and typically leads to faster revenue and earnings growth and ultimately to higher stock prices and dividends.
I'll take a look at five companies with those characteristics.
Apple (NASDAQ: AAPL) is number one on my list. The Cupertino, CA-based manufacturer of "iDevices" and Mac computers has about $29 billion of cash available to use, more than the market cap of over 4,000 other publicly traded companies in the U.S. Earlier this year it started returning some of the cash to shareholders in the form of a dividend.
The company has just completed a refresh of their product lineup, including the cash machines iPhone and iPad, just in time for the Christmas shopping season. Many analysts are expecting a blowout quarter for Apple. The stock has taken somewhat of a breather over the last two months, declining by over 20%, but I don't think that trend will continue. It is probably just a temporary blimp in a long bull run that began after the first iPod was announced in 2001. The gain has been over 5,000%. The company is priced with a forward P/E of about 10 (less if cash is backed out) and earnings are projected to grow over 20% per year.
QualComm (NASDAQ: QCOM) is a major supplier of chips to the smartphone manufacturers, including Apple and Samsung, and has a $14 billion pile of cash which has grown at a 11% average over the last five years. With a forward P/E of less than 15 and prospects of more than 15% earnings growth per year, the stock should provide a nice return in the future.
Bed Bath & Beyond (NASDAQ: BBBY) may benefit from the expected revitalization of the housing market as many homeowners will want to outfit their kitchens, bedrooms and bathrooms with the latest gadgets and furnishings. The company has just under $1 billion in cash right now and has been increasing it a 10% clip per year. Earnings are expected to grow over 10% a year for the next half decade and with a P/E less than its historical average (and well below that of its peers) it may be a good value right now.
Another business with no debt and lots of cash is Paychex (NASDAQ: PAYX). The company provides human resource and payroll services to small and medium sized firms. Currently it has $4 billion in cash, nearly twice its annual revenues. It is a relatively slow grower, only expanding earnings and cash at about 2% per year. However, Paychex pays a healthy dividend of $1.32 per share, yielding over 4%. It is a nice addition to an income producing portfolio.
The last company on my list is F5 Networks (NASDAQ: FFIV), which provides products and services used for the monitoring of Internet-based networks. The business has been growing earnings and cash at a robust 30% rate over the past five years. However, because of concerns about the overall world economy, projections are for a bit of a slowdown going forward. The company recently announced a slew of innovative products, many of them Cloud-based, being readied for the ever changing IT industry. The company has about $500 million in cash available right now.
Like individuals, businesses with no debt and lots of cash tend to flourish. It will be interesting to see if the theory continues to hold up in the future. I wouldn't bet against it.
Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple, F5 Networks, and Qualcomm. Motley Fool newsletter services recommend Apple, Bed Bath & Beyond, F5 Networks, and Paychex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!