Whenever I invest in any company, I look at the business that it is in first. If I like it’s business, I would look further at its profits as well as whether they have lots of cash which they can utilise for expansion or even just to tie them over during bad times. Of course, do not just use this cash position as benchmark because truth is, they may have lots of cash simply because they do not know what to invest! Of course, net cash is definitely better than a company full of debts no matter how awesome its business model may seem. Remember, if the business model works, it should work both during good times and bad times. If it works only during good times, that’s called ‘here today, gone tomorrow,’ company. Yes, today there are lots of companies that I would put in this category within BURSA Malaysia.
In an article in a local daily, it gave a few examples of companies with net cash positions. In fact its net cash position is so much that I think these companies would be the main beneficiaries during a downturn; it can buy up lots of undervalued companies. One example is Genting group which even after deducting all of its borrowings and debts, still has RM13 billion! As a conglomerate, Genting group has businesses in leisure, hospitality, plantation and property all over the world. How much is its stock price today? As at 30 March, you can get 1 unit of Genting Group for RM8.88. What an auspicious number indeed!
Another company with a huge net cash position would be Petronas Chemicals Group Bhd which is an integrated chemicals producer. It has RM9.8bil in net cash. I think this company would be able to buy good assets when opportunities arises. This company’s parent company is pertroliam National Bhd (Petronas). Another would be a company founded by the late Tan Sri Loh Boon Siew; Oriental Holdings Bhd. It has cash amounting to RM2.26bil. Oriental Holdings is a conglomerate with businesses in automotive, palm oil, real estate, hospitality, plastics manufacturing, building materials and healthcare. Its best known business would be the distribution of Honda vehicles in Malaysia.
Should these companies be your choice instead of those companies with lower net cash positions instead? Actually, I have zero units of all three companies listed here. Major reason is because there are many other companies which are growing faster and yet still in a good net cash position. Perhaps you may also want to consider companies with high dividend yields instead? Just buy the Saturday newspaper, refer to the business section. Search for all the stocks. Look under DY or also known as dividend yield based on its history. When you see the DY being 7% or two times today’s fixed deposit rate, do learn more about the company. I think during the current uncertainty, this may be a safe investment instead of trying to guess which company’s stock price would jump suddenly. Then again, Speculation is much faster. Yes, you can also refer to online sites but with online sites too! A good recommended site for news and even analysis as well as rumours, take a look here: http://klse.i3investor.com/index.jsp Happy buying.
written on 30 Mar 2015
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