Great Buys During America’s Financial Turmoil
Fred Wilson, whom many consider to be one of the most prolific venture capitalists ever, had a very interesting article on his blog recently. www.AVC.com
Basically he makes the case that this tumultuous economic state is going to provide some great opportunities for private equity firms and foreign buyers.
Companies like Apple, Google, Microsoft and Dell are have market caps that are now at incredibly low levels when you account for how much cash they have on hand.
Apple specifically has more than $20 billion cash and short term investments on hand. Their market cap as of today is 78 Billion. Deduct the $20 billion in cash and you have a company that’s trading at 6X cash flow. For a company that is continually gaining market share in the personal computer market, dominating the MP3 (which is actually often called iPod regardless if the audio device is one or not) player market and has just sold more than 10 million iPhone is less than a year the price seems like it’s a huge opportunity for a long term buy.
Even institutional blue chips are trading at value buy levels. Wal-Mart is trading at 10x cash flow, Comcast 6x and AT&T 4x cash flow. I know that the last thing on any American’s mind is probably about pouring money into the marketplace, but in reality things will come back to a normal level. I don’t think that these companies are at rock bottom yet. However fundamentally people will still have the same basic needs. Food, clothing, shelter, transportation, communication and entertainment. We’re going to have to tighten the belt drastically, and companies selling overpriced luxuries that many Americans indulge in (Starbucks) on a daily basis are going to feel it the most. But we will carry on, the financial crisis is serious but it’s not at a point where we can’t turn things around.
We should hope that American financial institutions will look to heavily invest in these great companies who are essentially on sale at a great discount. There’s no doubt that foreign companies will want to acquire undervalued properties and gain large positions if they cannot acquire a business outright. I’d prefer private equity investors to gobble up some of the cogs in the Fortune 500. In the 80’s the Japanese were buying up anything and everything that they could. Real-estate, large equity positions in companies and other investment vehicles. When their market took a major nose dive they were trying to unload as quickly as possible. Once we’re able to recover from our own economic crisis it’s important that in the event that another country enters into a major recession we don’t have a flood of debt or equity investments hitting the market all at once