The iPhone is one of the biggest commercial successes of all time. The product has changed the way many people live. Even those with Samsung or other smart devices benefit from the innovations of the iPhone.
When the first iPhone was introduced, Apple’s legendary CEO Steve Jobs informed analysts that the company’s goal was to capture 1% to 2% of the worldwide cell phone market over the next year. Ten years later, Apple has sold an estimated 1 billion iPhones and has 20% to 40% of the market.
The iPhone has always been sold at a premium price and high prices have led to large profits for Apple. Much of those profits are sitting as cash on the company’s balance sheet.
As of the end of September, Apple had $268.9 billion of cash and investments on its balance sheet. Of that total, $252.3 billion was held overseas for tax purposes, with the remaining $16.6 billion held in the United States.
With so much cash, Apple is free to pursue trading strategies that benefit share holders. The company can use that cash to reinvest in its existing operations, complete acquisitions to further its business plans, or reward share holders directly with dividends and indirectly with share buy backs. Apple has done all of those things.
Other Companies Hold Cash, Including Small Ones
Large cash balances are coming into focus as the possibility of tax reform looms. Large companies often hold their cash overseas in subsidiaries that do business outside the United States. These businesses are set to get a tax break under the proposed reform.
Analysts speculate this will result in a flurry of activity involving share buy backs, special dividends, repayment of debt, acquisitions and capital spending. This is almost certainly true because corporations would use cash if they are forced to, which could be done under the tax plan.
While the emphasis has been on how large companies will use cash, there are a number of small companies that also hold significant amounts of cash on their balance sheets. This week, we screened for low priced companies that have significant amounts of cash.
Among the companies that passed our screen is Aware, Inc. (Nasdaq: AWRE) which has a book value of $2.70 per share and $2.26 per share in cash on its balance sheet. The stock trades at less than two times the amount of cash it has.
The chart shows the stock is trading near support and could rally from its current level.
Aware provides software and services for the biometrics industry worldwide. The company’s software products are used in government and commercial biometrics systems to identify or authenticate people.
The company also provides imaging software products for medical images, such as JPEG2000 product to compress, store, and display images, as well as offers software maintenance services.
The company has been profitable since 2010 and grown sales an average of 5.9% a year over the past five years while earnings per share (EPS) increased an average of 7.5% a year over that time. This is a small company with sales of less than $17 million in the past twelve months.
If you decide to trade this stock, or any of the others described in this article, remember they are thinly traded and can be difficult to trade. Consider using limit orders to enter and exit the trades to reduce trading costs of stocks like this.
Other Cash Rich and Cheap Stocks
Gulf Resources, Inc. (Nasdaq: GURE) has a book value of $8.39 per share and cash equal to $4.13 per share, more than twice the company’s share price. The stock chart below shows that GURE is near support although there has been a great deal of volatility and support is less meaningful when volatility is high.
Gulf resources manufactures and trades in bromine, crude salt, chemical products, and natural gas in China.
The company is consistently profitable and has strong cash flow from operations. However, some analysts question accounting practices of small companies that are based in China. That does generally push stocks to below average multiples.
Innovative Solutions & Support (Nasdaq: ISSC) is a small company in the aerospace and defense sector. This is a sector dominated by large companies who often buy smaller competitors. The stock trades at about 10 times earnings and has been profitable in six of the past seven years.
ISSC trades at about twice the value of the $1.49 in cash on its balance sheet. The book value of $2.29 reflects the cash and property, plant and equipment the company owns. ISSC has no long term debt.
The stock chart shows the struggles of a small company in a sector dominated by giants. ISSC’s revenue peaked in 2014 and the stock suffered as the company lost contracts. The share price has been relatively stable for the past two years and the company is positioned to benefit from any new contracts.
ISSC is a systems integrator that designs, manufactures, sells, and services flight guidance and cockpit display systems. It offers flat panel display systems that could replicate the display of analog or digital displays on one screen and could replace existing displays in legacy aircraft.
The company also provides digital air data computers, which calculate various air data parameters, such as altitude, airspeed, vertical speed, angle of attack, and other information derived from the measure of air pressure; integrated air data computers and display units that calculate and convey air data information.
In addition, it offers engine and fuel displays that convey information related to fuel and oil levels, and engine activity, such as oil and hydraulic pressure and temperature; and integrated global navigation systems.
The chart of the next company, Jumei International Holding Lt (Nasdaq: JMEI), also shows a down trend and consolidation.
JMEI operates as an online retailer of beauty products in the People’s Republic of China.
The company offers beauty products, such as cosmetics, skin care, cosmetic applicators, fragrance, and body care products; and beauty products for men, and baby and children. It also provides apparel and other lifestyle products, including women’s wear, footwear, lingerie, handbags and luggage, men’s wear, sportswear and sporting goods, accessories, home goods, and other lifestyle products, as well as baby, children, and maternity products; and snacks and health supplements.
Jumei has been profitable since 2012 with positive cash flow from operations. JMEI is trading below its book value of $3.92 per share despite $2.32 in cash per share on its balance sheet and no long term debt.
The fifth cheap stock we identified is Network-1 Technologies Inc (Nasdaq: NTIP). This company has $2.17 in cash per share, a book value of $2.29 and no long term debt. The company is consistently profitable and trading at about 15 times earnings.
Network-1 Technologies develops, licenses, and protects intellectual property assets. The company owns 33 patents, including the remote power patent covering the delivery of power over Ethernet cables to remotely power network devices, such as wireless access ports, IP phones, and network based cameras; and the Mirror Worlds patent portfolio relating to foundational technologies that enable unified search and indexing, displaying, and archiving of documents in a computer system.
The stock recently sold off after a patent was ruled invalid.
The company is appealing the decision and the company’s book value includes just $0.05 for the value of patents. The remainder of the assets are tangible and saleable by the company.
All of these stocks are cheap and thinly traded. That makes them risky. But, any of these stocks could be a potential winner and all worth further research.
Triple-Digit Returns looks for companies that are misunderstood and potentially undervalued, lost darlings, mergers or spinoffs that could benefit share holders, or companies that show signs of strong interest by insiders who know the company best and see value.
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