From Today's Briefing
briefing.com
07-Jun-00
Cash Is King
[BRIEFING.COM - Robert Walberg] Elvis may be the King of Rock & Roll and Muhammad Ali may have been the King of the Ring, but in the investment world it is cash that is king. We're not referring to the cash held by investors, though those traders smart enough to move into cash in late February are king-like in our opinion. No we're talking about the cash held by companies.
In today's more conservative investment climate, Briefing.com contends that investors will want to shy away from companies that are cash-poor. The rise in rates and the miserable performance by the tech sector/market over the past couple months has made it very difficult for companies, especially those with limited histories, to raise additional capital. Any company that will have to go to the market with a secondary offering in order to raise funds is likely to seriously underperform over the near- to intermediate-term (at least). Consequently, we advise sticking to those companies with enough cash on hand to fund operations for
at least the next six to eight quarters.
Two examples of companies with ample cash and bright long-term prospects are CNet (CNET) and Cell Genesys (CEGE). Though both stocks took beatings during the recent market meltdown, we maintain that they are well-positioned for the long-term given that the emerged from the sell-off with very strong financials.
In fact, the first thought that comes to mind after breaking down Cell Genesys' numbers is "I'll buy that for a dollar." Actually, in this case it's more like two bucks, but that's about all an investor is paying for CEGE's operating business at today's price. Hard to believe but it's true. Let's do the math. CEGE has about $250 mln in cash, which divided by 33.7 mln shares outstanding comes to roughly $7.40 per share in cash. The company also holds about a 12% stake in Abgenix (ABGX 110), which is valued at $534 mln, or about $15.80 a share. Add the two together and you get $23.20 in cash and l/t marketable securities. Subtract that figure from yesterday's closing price of $25 and you are paying a mere $1.80 for the company's operating business.
So even though Cell Genesys lacks the kind of pipeline Briefing.com likes to see in a Biotech company, as none of its drugs/therapies are beyond Phase II trials, it more than makes up for that fact with its financials. CEGE can use its cash to aggressively fund new R&D. It's a long-term bet, but if you're looking to take a flyer in the volatile but exciting Biotech industry this a low-risk way of doing it. |
