In Search of Value

The perfect stock in this market is going to have a low valuation, low debt and lots of cash.

Of the companies reporting earnings so far this quarter, there are some promising candidates.

E*Trade is the most promising on a valuation basis, trading at about one times sales and book, and the company showed some promising signs of growth and profitability last night. It also has about $550 million in cash. However, the company has a high debt-to-equity ratio of about 2.7. Still, it’s got some promise.

Silicon Storage is intriguing, at 1.5 times sales and 1.7 times book, no debt, and about $2.70 a share in cash. Not bad on first glance, and with about a 30% gain on a positive preannouncement this morning, investors may have discovered it.

Redback is another with relatively low debt, $247 million in cash, and a price-to-book ratio of less than 0.50. Price-to-sales is a little high, however, at about 4.0.

Yahoo , which led the parade of companies reporting last night, has no debt and more than $1.7 billion in cash, both very good signs that the company will be around for a while. However, the stock trades at more than 8 times sales and 4 times book value, making it extremely expensive on a valuation basis, and has little to show in the way of growth or earnings.

McAfee.com is even more expensive, at about 10 times sales and book. It has about $1 a share in cash, and no debt.

In short, a couple of promising investment candidates in Silicon Storage and E*Trade, and perhaps in Redback too. But Yahoo and McAfee do not look like a good place to invest your hard-earned money.