For companies who possess great hoards of it, cash means opportunity. In difficult economic times when raising capital can be expensive, an available pool of cash affords a business both a cushion to weather the storm and the possibility of acquiring new units or companies cheap. Read on to see how pockets full of cash helped these companies increase their shareholder value.
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The current recession and crash in the markets have provided ample evidence that ‘cash is king.’ Companies that hold sizeable stores of cash have taken lesser beatings by investors than those who are debt-laden and struggling.
In the tech world, cash hoards have recently become something of a fashion. In fact, out of the fifteen non-financial companies with the largest amount of cash on hand, a full eight are big tech names. Here’s a closer look at two of them.
Big Blue = Big Green
IBM (NYSE:IBM) recently reported cash holdings of $12.907 billion, placing them 11th among America’s most cash-rich companies today. But what they’re doing with that cash is equally noteworthy.
Just last week the company decided to raise its dividend by a full 10%, offering new investors a current yield of 2.12% (as of May 12th) for owning the stock. And with a P/E ratio of only 11.54, IBM has lots of room for share price expansion. If that wasn’t enough, the company also committed $3 billion toward a share buyback program to further enhance shareholder value.
The result? IBM stock has risen 50% since bottoming at $69.50 in November of 2008.
Technology Companies Prosper in Tough Times
Many attribute corporate America’s efforts to cut costs and enhance productivity during these tough times as the main thrust behind recent technology company strength. However you account for it, Hewlett-Packard (NYSE:HPQ) is another outfit reaping the benefits.
Hewlett-Packard slides in at 14th on the list of great American cash-cows with a significant $11.255 billion in cash. The computer and printer giant recently considered purchasing Sun Microsystems (Nasdaq:JAVA), maker of the Java technology platform, but backed out of the deal when its terms couldn’t be met. The company is allegedly still on the hunt for an appropriate acquisition, and in the meantime, its shares have risen nearly 40% in less than two months. The stock trades for a mere 10.93 multiple of last year’s earnings and pays a nominal 0.91% dividend.
Year-over-year, Hewlett Packard has grown its market share in the home-computing market from 23.8% to 27.6%.
The Wrap
Cash gives big tech the opportunity to grow in troubled times. Companies with large hoards of cash are highly liquid which allows them to survey the market for acquisition or growth opportunities rather than playing defensively. (In addition, Find out which catalysts can turn struggling stocks around in our related article Turnaround Stocks: U-Turn To High Returns.)
