Monday, September 5, 2011

Tech Sector Has a Cash Problem

...too much of it.

Here's a good Barron's article on just how much cash is on their balance sheets and some thoughts on what to do with it.

I can think of worse situations than having a low valuation and lots of cash like Apple (AAPL) and some other tech stocks.

The article asserts that cash makes up an average 28% of tech enterprise value yet the average P/E is just 10.4 times this year's expected earnings.

The Barron's article does not specify how that 28% of tech enterprise value was calculated. Still, beyond Apple, there's no question many of the large cap tech companies have substantial net cash on the balance sheet. Others include: Microsoft (MSFT), Dell (DELL), and Google (GOOG).

So these are cheap but can't say I'll be surprised if they get even cheaper as the European debt/banking crisis plays out.

If the cash gets put to good use then none of this will be a problem for shareholders in the long run. The concern for now is all that idle cash is basically earning nothing and once it is put to use it will be wasted on expensive acquisitions.

Adam

Small long positions in AAPL MSFT, DELL, and GOOG

Related post:
Technology Stocks
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