David Kuo: Follow the scent of Apple's juicy bank balance to survive the slowdown
Sunday 18 December 2011
Apple is reckoned to be sitting on a cash pile of almost $82bn.
That's more money than the US government reserve. In economic downturns cash is king. It means you don't have to worry when banks – predictably – stop lending, and it allows firms to pick off competitors when they are going cheap.
If you want to look for companies poised not only to ride out any recession but actually to make the most of it, then follow the cash trail.
Consider the UK's second-largest pharmaceutical company AstraZeneca, which has around £700m of readies on its balance sheet. But a big stash of cash is unlikely to appease growth investors, who want to see rising revenue rather than a rising bank balance. Worryingly for them, AstraZeneca has warned that sales could be flat or even decline as patents on older drugs expire. However, AstraZeneca could be in pole position to snap up small and promising biotechnology outfits that complement its medical treatment research.
Mining conglomerate BHP Billiton has around £200m of debt – peanuts for a company that is worth around £148bn. The slowdown is an opportunity for it to add to its growing portfolio of assets. It shrugged off its disappointment at not getting its hands on Canada's Potash Corp, and recently snapped up the US shale gas producer Petrohawk. As smaller miners struggle, the mighty, such as BHP Billiton, Rio Tinto and Anglo American may be poised to strike.
Unlike politicians, many businesses see recessions as simply the end of one business cycle and the start of another. Weak businesses will either fall, downsize or be acquired by stronger companies, whereas well-run businesses should not only survive but emerge stronger. Investors' responsibility is to identify and capitalise on those well-run companies. Follow the cash is the best advice.
David Kuo is director of financial website www.fool.co.uk
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