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Red Flag Report: Alternative Fuel Mixture Credit (AFMC) Windfall

The second report in our Red Flag series focuses on a little-known earnings Windfall in the Paper and Products Industry. This report is another example of the deep analysis New Constructs performs on all 3000+ companies under coverage. Our expertise is in navigating poor and confusing disclosure in the Financial Footnotes to find the truth about corporate profitability and valuation.
by David Trainer, Founder & CEO
New Constructs
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Stock Pick of the Week: Buy Bristol Myers Squibb Co (BMY) – Very Attractive Rating

HIDDEN GEMS: 1. Our dis­counted cash flow analy­sis shows that BMY’s cur­rent val­u­a­tion (stock price of $27.16) implies that the company’s prof­its will decline by 35% and never grow again. 2. The com­pany grew its eco­nomic earn­ings by $307.5mm (12% increase) dur­ing its last fis­cal year. 3. The com­pany has $9,507mm in Excess Cash, which we remove from our Invested Cap­i­tal cal­cu­la­tion. $9,507mm mil­lion is more than 20% of BMY’s market cap.
by David Trainer, Founder & CEO
New Constructs
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New Special Red Flag Report on Off-Balance Sheet Debt

The first in a series of upcoming reports on Red Flags and Hidden Gems, we published our Red Flag Report on Off-Balance Sheet Debt. This report delivers: 1. Measurement of the impact of the operating lease accounting loophole on the entire stock market and all 3000 companies we cover. 2. Explanation of exactly how the off-balance sheet debt from operating leases affect economic earnings.
by David Trainer, Founder & CEO
New Constructs
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Stock Pick of the Week: Sell/Short CB Richard Ellis Group, Inc. (CBG) — Very Dangerous Rating

RED FLAGS: Mis­lead­ing Earn­ings: CBG reported a $1,045mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $358mm. Very Dan­ger­ous Val­u­a­tion: Stock price of $19.06 implies CBG must grow its NOPAT at 20% com­pounded annu­ally for 15 years. Has any company ever done that, much less a commercial real estate company?
by David Trainer, Founder & CEO
New Constructs
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Stock Pick of the Week: Buy Schiff Nutrition Intl (WNI) — Very Attractive Rating – Small Cap Special

HIDDEN GEMS: 1. Our dis­counted cash flow analy­sis shows that WNI’s cur­rent val­u­a­tion (stock price of $7.89) implies that the company’s prof­its will decline by 25% and never grow again. 2. The com­pany grew its economic earnings more than its reported earnings. Economic earnings rose by $9.1mm (506% increase) while Net Income rose by only $8.1mm (79% increase) during its last fiscal year. 3. The com­pany has $42mm in Excess Cash, which we remove from our Invested Cap­i­tal cal­cu­la­tion. $42 mil­lion is 20% of WNI’s mar­ket cap.
by David Trainer, Founder & CEO
New Constructs
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Rite Aid Corp (RAD) — Dangerous Rating, free report for Ask Matt Readerss

Rite Aid Corp (RAD) gets a Dan­ger­ous Rat­ing because of these RED FLAGs: 1. Very Expen­sive val­u­a­tion: cur­rent stock price implies the com­pany will grow revenues and NOPAT at 6% com­pounded annu­ally for the next 15 years while also more than doubling ROIC from 6.1% to 13.7% within the same time frame. 2. Off Balance-Sheet debt: of $5,502mm or 93% of "Reported" Net Assets 3. Asset-write-offs: $3,417mm or 58% of "Reported" Net Assets
by David Trainer, Founder & CEO
New Constructs
1Comments

Buy MSFT: Goldman Downgrade Presents Opportunity

We reiterate our pick for last week's Stock Pick of the Week: Buy Microsoft Corp (MSFT) — Very Attractive Rating. We consider the recent downgrade from Goldman an investment-banking driven head fake. Because MSFT is not a good investment banking client (very little merger or stock offering activity), investment banks have little to lose by downgrading or putting a sell rating on the this stock.
by David Trainer, Founder & CEO
New Constructs
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Drugstore.com Inc (DSCM) — Dangerous Rating, free report for Ask Matt Readers

Drugstore.com (DSCM) gets a Dan­ger­ous Rat­ing because of these RED FLAGs: 1. Very Expen­sive val­u­a­tion: cur­rent stock price implies the com­pany will grow rev­enues at 20% com­pounded annu­ally for the next 15 years while also improv­ing ROIC from –2.3% to 10.9% within the same time frame. 2. Off Balance-Sheet debt: of $15mm or 15% of Net Assets 3. Asset-write-offs: $210mm or 206% of Net Assets
by David Trainer, Founder & CEO