The old saying “Cash is king” is proving itself as relevant ever as business credit and commercial paper lending virtually grind to a halt. We are living in a time when credit is virtually nonexistent for large companies, forcing them to borrow short-term lines of credit at extremely distressed rates. For small and mid-tier companies, the short-term credit outlook is even more grim.

Given the above stresses in the market, it is essential for any company to have ample cash on its balance sheet. That said, here are a few names that you want to keep an eye on.

Trident Microsystems (TRID): Trident Microsystems is a $1.50 stock with a market cap of around $90 million. The company is involved with the development and manufacturing of integrated circuits associated with digital TV and liquid crystal displays.

The business might not be particularly interesting, but here is where things do get interesting: Trident is actually trading with a negative enterprise value of $135.92 million and a negative EV over EBITDA of -17.947. This is because Trident is actually trading for below its cash on hand. The company has $230 million in cash ($3.763 per share) and zero debt; forget about the fact that the company has a stated book value of an additional $3.643 per share. The company has no meaningful expenses in its horizon, and given the massive amount of cash on the balance sheet, it's hard to imagine Trident not moving higher -- at least in line with the cash on hand.

QLT (QLTI): Biopharmaceutical company QLT is a $2 stock with a market cap of $154 million. It has $155.95 million in cash and zero debt, meaning that it is trading below its cash on hand.

QLT offers three particularly interesting drugs. First is Eligard, which is a prostate cancer drug that launched in 2002.  Eligard has been approved in North American, various countries within the EU, Australia, New Zealand and more; such wide approval is a huge positive.  To make things even better, QLT just hired Goldman Sachs as an advisor; QLT management is looking to sell off this part of the business.  Merrill thinks Eligard’s worth $150 million to $180 million, while RBC thinks $125 million to $145 million.  Likely buyers include Pfizer (PFE) and Sanofi (SNY).  During its last conference call, in late October, QLT said it was “in active negotiations” to sell Eligard.

QLT's next offering is Visudyne, which is used for the treatment of wet age-related macular degeneration.  Launched in 2000, Visudyne therapy is approved and used in more than 75 countries.  Sales are currently declining, but if it is approved for a use as a combination therapy, sales should pick up again.  Merrill thinks it’s worth $150 million, while RBC thinks Visudyne is worth $225 million, all assuming two times current sales.

Finally, QLT has Aczon, a gel used for the treatment of mild to moderate forms of acne, which is approved in the U.S and Canada.  Assuming two times current sales, you get $25 million to $50 million right there.

Interestingly enough, QLT has $120 million in restricted cash in the form of bonds on its books.  QLT lost a court judgment but is currently appealing the ruling.  If it wins the case, QLT will get to keep the $120 million, meaning the firm would be selling below its cash levels.  If, worst-case scenario, QLT loses the case, it will be forced to pay the $120 million, which it has already planned for, so the cash on its balance sheet will not change. Here the upside is $120 million if it wins the case, and $0 if it loses.

So with a decent quarter under its belt, with a proactive management that is sitting on a ton of cash looking to sell assets and buy back stock, with Goldman Sachs looking to sell its Eligard asset for $100 million to $150 million and with the possibility of an additional $120 million in bonds (which QLT will liquidate for cash), QLT is poised to move higher. 

Adaptec (ADPT): Adaptec is a computer-based systems company that manages and protects client’s data and digital content. The company has a market cap of $371.75 million, yet it has $457 million in cash on its balance sheet, with $87 million in debt. In total, Adaptec has $3.749 in cash per share, despite its common stock trading at just $3.06 per share.

Selectica (SLTC): Selectica provides sales “configuration and management software solutions that allow enterprises to manage sell-side business processes." It has a market cap of only $28.64 million, and it has $33.32 million in cash on its balance sheet, or $1.16 per share, with $5.77 million of debt. Selectica trades with an EV of -$1.15 million and EV/EBITDA of 0.165.

Zoran (ZRAN): Zoran provides “digital solutions to the digital entertainment and digital imaging markets worldwide.” It has a market cap of $357.59 million, and its cash on hand is $304.13 million, $5.937 per share, with zero debt. Zoran has an EV of just $58.58 million and EV/EBITDA of 1.794.

Posted on Nov. 12, 2008