Value Trading Opportunity of a Lifetime?
With 105 out of the S&P 500 stocks trading under $10 per share, compared to only 59 out of 500 back in October 1987, is this a clear sign of a value trading opportunity of a lifetime or a value trap?
Zachary Karabell says it depends on the company. Some are total traps. They've got no earnings, are burning cash and in trouble. However, there are a number of other companies with very, very low P/E multiples and lots of cash on their balance sheets.
Three examples of companies with siginifcant levels of cash on hand are Nvidia ($2.98 cash), Corning ($2 cash), and Broadcom ($6 cash). Karabell suggests that even if you discount 2009 earnings, this cash takes those already low valuation multiples even lower, making for incredible entry points on the buy side.
Guy Adami agreed with Karabell on most of his points, and referred to Broadcom as a "raging buy".
Karen Finerman feels there are definitely a number of companies who are not burning through their cash positions right now. She believes that Nvidia seems remarkably cheap. Two companies with significant cash to burn that Karen holds are Cisco and Microsoft that also seem to fit the mold of solid earnings, lots of cash and low valuation (although neither is a $10 stock).
Adami also added that Intel is another company that has a great balance sheet with lots of cash. They just introduced a new chip to the market that was basically ignored by Wall Street.
Jeff Macke jumped in to add Microsoft as a company that he's been long on for a while, who is so cash heavy, but in their case have been unable to take advantage of it.
Finerman had one more company like this in Dell . She said "There is a real business there, they do make money".
Finally, Zachary Karabell added an energy name to the list in Weatherford. Huge in cash and recently flirting with the $10 level.