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Stock Pick of the Week: Sell/Short CBS Class B (CBS) Very Dangerous Rating

CBS’s get our Very Dan­ger­ous Rating. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price. RED FLAGS: 1. Mis­lead­ing Earn­ings: CBS reported a $11,899mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $548mm. 2. Underfunded Pensions of $2,239mm (20% of market value) 3. Asset-write-offs of $10,559mm in asset write-offs (50% of Net Assets and nearly 100% of the market value) 4. High Valuation: market price implies CBS must grow its revenue at 10% com­pounded annu­ally for 23 years and increase its ROIC from 2.4% to 6% over the same time frame.
by David Trainer, Founder & CEO
New Constructs
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icad Inc (ICAD) — free report for Ask Matt, Dangerous Rating

icad (ICAD) 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 10 years while also improving ROIC from -3.7% to 1.5% within the same time frame. 2. Option Liabilities: of $2.1mm or 3% of the current market value 3. Asset-write-offs: $4.4mm or 7% of Net Assets
by David Trainer, Founder & CEO
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Stock-Picking Matters More Than Ever

As follow-on to my 3-part Market Outlook series of posts, I am highlighting a quote from GaveKal research's Daily note today which supports my assertion that the "Easy Money Days Are Over" and that success in stock-picking will rely on superior analytical skills as opposed to the market-timing skills that have predominated most of the past 25 years (see Market Outlook Part 1: Rise of the Speculative Movement).
by David Trainer, Founder & CEO
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Stock Pick of the Week: Sell/Short Capital One Financial (COF)

The Risk/Reward of invest­ing in Capital One’s stock looks Very Dan­ger­ous to me. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price. RED FLAGS: 1. Mis­lead­ing Earn­ings: COF reported a $399mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $1,783mm. 2. The company’s ROIC is in the Bot­tom Quin­tile of all the com­pa­nies we cover. 3. Stock price of $40.69 implies COF must grow its NOPAT at 15% com­pounded annu­ally for 15 years.
by David Trainer, Founder & CEO
New Constructs
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Citigroup — free report for Ask Matt, Dangerous Rating

Dangerous Rating with several RED FLAGS. See my recent post Mayo Is Right about Citi for details on our analysis of the company's loose Deferred Tax accounting and other Red Flags. There are other reasons to run from this stock. RED FLAGS: Over $7bn in off-balance sheet debt $2.2bn in under-funded Pension liabilities Over $10bn in Asset write-offs Very Dangerous valuation (detail follow)
by David Trainer, Founder & CEO
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Mayo Is Right About Citigroup

A large write-down of its deferred tax assets could be devastating for Citi--over 30% of its total book value is comprised of net deferred tax assets. Our detailed analysis of the Notes to the Financial Statements also found these RED FLAGS : 1. Over $7bn in off-balance sheet debt 2. $2.2bn in under-funded Pension liabilities 3. Over $10bn in Asset write-offs
by David Trainer, Founder & CEO
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JDS Uniphase Cp (JDSU) — free report for Ask Matt, Dangerous Rating

RED FLAG: Our analy­sis of the Finan­cial Foot­notes reveals: the com­pany has writ­ten off over $60bn in assets over the last twelve years. That is a big num­ber com­pared to the company’s mar­ket cap of roughly $2.2bn and its net assets of about $1.3bn. This results in economic earnings of -$5,346mm compared to Net Income of -$866mm during the last fiscal year. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on JDSU.
by David Trainer, Founder & CEO
New Constructs
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McDonalds Corp (MCD) – free report for Ask Matt, Very Attractive Rating

HIDDEN GEM: Our detailed val­u­a­tion model shows that MCD grew its “eco­nomic” prof­its more than it account­ing prof­its dur­ing its last fis­cal year. Eco­nomic prof­its rose by $272mm while account­ing prof­its rose by $238mm. For details on what causes the dif­fer­ence between Eco­nomic Ver­sus Account­ing Prof­its, see Appen­dix 3 on page 10 of our free report on MCD.
by David Trainer, Founder & CEO