When I was in college, I took a class where the major project was to write a stock recommendation, just like a Wall Street analyst. The company that I chose was National Presto (NPK) which made small kitchen appliances . Their products compete with the George Foreman grill. However, most of the value of the company came from cash. The company had a market capitalization of around $300 million, and $270 million in cash. The underlying business hardly had any value. Really, you were buying a money market fund in disguise. If National Presto invented the next must have kitchen gadget, maybe the stock would increase by 20% in value. As it was, the core business was losing a couple million per year. My recommendation was to “hold”. The downside was limited but, so was the upside. Today’s theme is companies that hold lots of cash and bonds.
Apple (AAPL) , Google (GOOG), and Microsoft (MSFT) all hold lots of cash: respectively $100 billion, $45 billion, and $60 billion. These three companies manage $205 billion in cash. That is pretty close to how much money is managed by the Pimco Total Return Fund. As the amounts are so large, what they do with that cash can effect the market. With the exception of Apple, these guys have their money primarily in Treasuries. Apple is starting to diversify. Are they are trendsetter and could this be a long-term negative for short-term treasures and a positive for corporate bonds? The article by Richard Leong in Reuters explores the question from the other prospective. How does all this cash effect the returns of the companies? We live in an equity-centric world.
LB Summary: Apple (AAPL) decreased its holding of Treasuries to about 36% of its marketable securities in 2011 compared to over 50% for Google (GOOG) and Microsoft (MSFT). Apple’s corporate bond holdings went from 36% to 40% of marketable securities in 2011. As a result of these changes, Apple to some degree has missed out on the huge rally in US Treasuries.