Mad Mail: Evaluating Companies with Cash On Hand
Jim: Recently, on your show, someone asked you how to evaluate companies that have lots of cash on their balance sheet. You said to take that amount per share and subtract it from the share price. I was wondering if you should do the inverse to companies that have a lot of debt. Should you find that per share number and then add it to the price? - Thanks, Steve
Cramer says: this is a great and very intuitive question. Let me first go back over my reasoning. I was talking about Apple computer in the case that it looks like Apple is very expensive but it is not really fair to judge its price-earnings multiple based on the full price of the stock when so much of the price of the stock so happens to be cash - in that case almost $25. Now, when it comes to debt, in some companies that are over-indebted and cannot pay I like your idea but I wouldn't be so simple as to put it into a formula like that. I would just say, 'listen, too much debt, can't pay the bills... avoid the stock.'
Jim: What do you think about television over the Internet on your mobile device? Comcast and Time Warner ran a successful test of a new service that allows subscribers to view certain television programs over the Internet. Is this service the wave of the future for advertising or is this idea a few clowns short of a circus? - Thank You, Fred
Cramer says: Nothing at Time Warner or Comcast can be run by clowns. They are both very well run companies. I know the sympathy and I get the joke. Here's what you need to know: These can't move the needle. What can move the needle are new FCC rules about these companies so they can buy more companies and not be circumscribed by the amount of ownership they have. That's what makes Comcast more attractive than I thought. It's what makes Time Warner more attractive than I thought, because they can grow their existing base beyond where I thought. That's what controls the growth of the stocks.
Dear Jim: Should investors be worried about the national debt we have accumulated here in the US? If you would, please explain how you feel this will impact average citizens and investors in the near and long term. - Thanks much, Tony
Cramer says: My friend Doug Kass who works at TheStreet.com talks endlessly about how bad this will be. I know that it means our taxes are going to go way up. I have to tell you that it means that eventually this market will come down. It is in what I call the 'out years' and not to worry about it yet. It weighs on me every day. It should weigh on you too. And if ther isn't some discipline in Congress we're going to be talking about a new bear market in 18 months. That's if we don't get this stuff under control.
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