Analysis: Corporate cash hoard screams "buy" for investors

Mon Jan 30, 2012 12:09am EST
 
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By Herbert Lash

(Reuters) - Apple's blowout quarter this week increased its cash holdings to almost $100 billion, a staggering hoard that casts a spotlight on what may prove a big catalyst for the U.S. equity market in coming years.

U.S. corporations are sitting on record levels of cash - nearly $1 trillion for companies in the Standard & Poor's 500 index - but with the exception of high dividend-paying stocks this past quarter, that cash pile has done little to boost share prices.

Investors often shun companies with excess cash as they fear management will negotiate expensive or ill-advised acquisitions, or buy back shares when the stock is far from cheap.

But that notion may be short-lived. In coming years, a pile of cash is going to be a distinct advantage in what is likely to be a conservative borrowing environment. Those cash-rich companies are the best placed to outperform the market.

"In the coming decade, rather than U.S. companies being absorbers of capital we expect them to be sources of capital," said Richard Vigilante, director of selected research at hedge fund Whitebox Advisors in Minneapolis.

That's if they use the cash wisely.

Cash as a percentage of the S&P's market value is now at 11.48 percent, just shy of a record high reached in 2010. The $998.6 billion that the S&P 500 companies hold is up 63 percent from five years ago, and nearly double the $342.3 billion in cash they held a decade ago.

That cash figure for S&P companies excludes financials, transports and utilities, which keep high balances as part of normal operations.   Continued...