When developing screens I like to focus on certain things such as P/E ratio, quarterly growth, and EPS trends, but there are times when I look at simple variables. This article focuses on one of those simple variables and should act as a great starting point for many investors.
In this article I will pay very close attention to the amount of total debt the company is carrying, compare that to the total cash the company has, and from there develop a ratio. That ratio is simply formulated by taking the company's debt and dividing by the total cash. I consider any ratio under 0.5 "very healthy," under 1 "healthy," under 1.5 "above average," under 2 "satisfactory," under 2.5 "unsatisfactory," under 3 "cautionary," and anything over 3.5 "a warning sign."
Yahoo (YHOO), which trades in a 52-week range of $11.09/share (52-week low) to $16.79/share (52-week high), has a market cap of $19.24 billion and was given a ratio of 0.018 based on the statistical calculations of my formula. YHOO currently has $2.21 billion in total cash on its books (it should be noted that the company currently has $1.42 billion in operating cash flow and $576.85 million in free cash flow) and only has $40.0 million in total debt. That equates to a total-debt-to-total-cash ratio of 0.018, which in my opinion is a very positive catalyst moving forward. Recently trading at a 2.3% premium to its 200-day moving average, YHOO has been reiterated as a Buy at the Street.com and is due out with earnings July 17th.
Google (GOOG), which trades in a 52-week range of $480.60/share (52-week low) to $670.25/share (52-week high), has a market cap of $191.25 billion and was given a ratio of a 0.162 based on the statistical calculations of my formula. GOOG currently has $47.62 billion in total cash on its books (the company currently has $15.09 billion in operating cash flow and $8.36 billion in free cash flow) and only has $7.71 billion in total debt. That equates to a total-debt-to-total-cash ratio of 0.162, which is a very positive catalyst moving forward. Recently trading at a 3.5% discount to its 200-day moving average, GOOG announced that it would settle with Apple (AAPL) regarding the bypassing of user-initiated privacy settings.
Intel (INTC), which trades in a 52-week range of $19.16/share (52-week low) to $29.27/share (52-week high), has a market cap of $191.25 billion and was given a ratio of a 0.547 based on the statistical calculations of my formula. INTC currently has $13.75 billion in total cash on its books (the company currently has $19.92 billion in operating cash flow and $6.37 billion in free cash flow) and only has $7.52 billion in total debt. That equates to a total-debt-to-total-cash ratio of 0.547, which is a very positive catalyst moving forward. Recently trading at a 5.7% discount to its 200-day moving average, INTC plans to announce its second-quarter earnings on July 17th. Analysts are expecting INTC to earn $0.52/share on revenue of $13.57 billion, and if the company continues to surpass estimates as it has for at least the last four quarters, we could see a very nice pop in the stock.
Microsoft (MSFT), which trades in a 52-week range of $23.79/share (52-week low) to $32.95/share (52-week high), has a market cap of $246.90 billion and was given a ratio of a 0.225 based on the statistical calculations of my formula. MSFT currently has $58.35 billion in total cash on its books (the company currently has $29.89 billion in operating cash flow and $21.25 billion in free cash flow) and only has $13.15 billion in total debt. That equates to a total-debt-to-total-cash ratio of 0.225, which is a very positive catalyst moving forward. Recently trading at a 3.1% discount to its 200-day moving average, MSFT plans to announce its second-quarter earnings on July 19th. Analysts are expecting MSFT to earn $0.62/share on revenue of $18.16 billion, and if the company continues to surpass estimates as it has for at least the last four quarters, we could see a very nice pop in the stock.
Based on my calculations, all four companies are currently carrying a debt load that is considered to be very healthy based on the standards I have established. On a secondary note, two of the four companies are expected to grow during significantly during the second quarter -- Yahoo is expected to grow at a rate of 27.8% and Google is expected to grow at a rate of 15.8%. With positive expectations for all four companies in terms of EPS performance and the minimal debt each carries, a long-term position in these names at current levels looks very promising.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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