3 companies with large cash positions
In One Up on Wall Street, Peter Lynch talks about cash position. Specifically, he cites his investment in Ford.
“Ford’s stock had moved from $4/share in 1982 to $38/share in 1988. Along the way I’d bought my 5 million shares. At $38/share I’d already made a huge profit in Ford, and the Wall Street chorus had been sounding off for almost two years about Ford’s being overvalued. Numerous advisors said that this cyclical auto company had had its last hurrah and the next move was down. I almost cashed in the stock on several occasions.
But by glancing at the annual report I’d noticed that Ford had accumulated the $16.30 a share in cash beyond debt. For every share of Ford I owned, there was this $16.30 bonus sitting there on paper like some delightful hidden rebate.
The $16.30 bonus changed everything. It meant that I was buying the auto company not for $38 a share, the stock price at the time, but for $21.70 a share ($38 minus the $16.30 in cash). Analysts were expecting Ford to earn $7 a share from its auto operations, which at the $38 price gave it a p/e of 5.4, but at the $21.70 price it had a p/e of 3.1.
A p/e of 3.1 is a tantalizing number, cycles or no cycles. Maybe I wouldn’t have been impressed if Ford were a lousy company or if people were turned off by its latest cars. But Ford is a great company, and people loved the latest Ford cars and trucks.”
Following Lynch’s example, here are three companies from our list of Asset Plays that have large cash positions.
Adams Resources and Energy Inc (AE)
Adams Resources & Energy Inc is US-based company mainly engaged in the business of crude oil marketing, tank truck transportation of liquid chemicals and dry bulk, and oil and gas exploration and production. The company operates through three segments namely Marketing Segment which is engaged in purchasing crude oil and arranges sales and deliveries to refiners and other customers; Transportation Segment is involved in the transportation of liquid chemicals and dry bulk on a for-hire basis throughout the continental United States and Canada; and Oil and Gas Segment which is in the business of exploration and development of domestic oil and natural gas properties.
Currently, Adams has a cash position of $27.75/share. It’s share price is $36.48. It’s stated p/e ratio is 51.73 but when you subtract its cash position the p/e ratio is 12.08.
China Yuchai International Ltd (CYD)
China Yuchai International Ltd is a Bermuda holding company that is a subsidiary of Singapore-based Hong Leong Asia. China Yuchai International primarily operates through its majority-owned subsidiary Guangxi Yuchai Machinery Company, a China-based company that manufactures, assembles, and distributes diesel engines for various vehicles including trucks, buses, and cars, as well as construction and agricultural, marine, and power-generation equipment. The company generates the majority of its sales from the Chinese market.
Currently, China Yuchai has a cash position of $12.61/share. It’s share price is $16.42. It’s stated p/e ratio is 6.33 but when you subtract its cash position the p/e ratio is 1.44.
Subaru Corp (FUJHY)
Subaru Corp, formerly Fuji Heavy Industries Ltd is an automobile manufacturing business. The company is split into three segments: Subaru Automotive Business, Aerospace Company, and Industrial Products. The Subaru Automotive Business, which constitutes the vast majority of the company’s revenue, manufactures, repairs, and sells passenger cars and their components under the Subaru brand. The Aerospace Company includes aeroplanes and aerospace-related machinery and components. Industrial Components includes generators, engine-equipped machinery, agricultural machinery, and construction machinery. More than half company sales are derived from the United States.
Currently, Subaru has a cash position of $4.17/share. It’s share price is $12.28. It’s stated p/e ratio is 11.08 but when you subtract its cash position the p/e ratio is 7.54.
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