Wednesday, December 31, 2008

Cash Not Yet King When It Comes To Market Performance

With the credit crunch upon us, one might expect relative stock market outperformance from cash-rich companies that can finance their own expansions, take advantage of undervalued companies for strategic acquisitions, and ride out cyclical declines in business. According to Financial Times, six publicly held U.S. companies that hold the most cash are (billions USD):

Berkshire Hathaway (BRK.A): 106.1
Exxon Mobil (XOM): 28.2
Apple (AAPL): 24.5
Cisco Systems (CSCO): 19.9
Microsoft (MSFT): 18.7
Google (GOOG): 14.4

Since November (chart above), these stocks as a whole have not outperformed the S&P 500 Index (SPY; left most column on chart). Nor have they outperformed on a year-to-date basis; all, except XOM, are down more than 35%, while SPY is down 39%.

This will be an interesting group of stocks to follow going forward. While they hold an impressive stash of cash to weather economic storms, note that the entire group holds less than half of the $700 bn government allocation to TARP, perhaps obscuring the value of their fiscal prudence.

Interestingly, the greatest prudence belongs to China: three of the top four cash holding companies worldwide are Chinese banks, while China Mobile checks in at number six.