Minority Interests – Valuation Adjustment

We subtract the fair value of the minority interest liability from shareholder value in our DCF model as the minority interest shareholders have the rights to that portion of the cash flows. Without careful research, investors would never know that these minority interest liabilities distort GAAP numbers.

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Preferred Stock – Valuation Adjustment

Preferred stock is a hybrid instrument that carries no voting rights but has a senior claim on assets and cash flows to common stock. Dividends usually must be paid out to preferred stock owners before common stock owners can receive any money. In the event of liquidation, preferred shareholders also have priority.

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Outstanding Employee Stock Options – Valuation Adjustment

Without careful footnotes research, investors would never know the amount of employee stock options that decrease the amount of future cash flow available to shareholders by diluting the value of existing shares.

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Danger Zone 8/12/13: Tesla Motors (TSLA)

Tesla Motors (TSLA) is in the Danger Zone this week. Up over 350% in 2013, the electric automaker has dominated headlines and made a lot of investors very happy (and a lot of shorts very angry). At ~$150/share, it’s no secret that the stock is expensive. What most investors don’t realize is that there are some significant details buried in the footnotes of TSLA’s SEC filings that materially affect the outlook for shareholders in the company.

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Accumulated Goodwill Amortization and Unrecorded Goodwill – NOPAT Adjustment

Converting GAAP data into economic earnings should be part of every investor’s diligence process. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary responsibilities.

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August’s Most DANGEROUS Stocks Available to the Public Today

Most Dangerous Stocks have misleading earnings, which means reported earnings are rising while true economic earnings are declining.

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August’s Most Attractive Stocks Available to the Public Today

The Most Attractive Stocks portfolio (+5.8%) outperformed the S&P 500 (+4.4%) last month. There are 16 new stocks in the Most Attractive portfolio for this month.

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GURU and the Rise of Quality Holdings Research

The recent popularity of the Global X Top Guru Holdings Index ETF (GURU) is a testament to the fact that investors are realizing the importance of a fund’s holdings above all else.

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Meet Sharegate: Another Distribution Partner For New Constructs

New Constructs has joined Sharegate as an Elite Contributor. If you are unfamiliar, Sharegate is the investment industry’s newest financial social network. It has some new tools for communicating with companies, submitting investment analysis and interacting.

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How To Protect Yourself From Wall Street Insiders

Recent revelations about the illegalities of information flows at expert networks and hedge funds like SAC Capital signal, I hope, a long overdue decline in amoral activities that Wall Street insiders have exploited for decades to score outsized riches while the average investor is often left holding the bag.

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How New Constructs’ Reverse Discounted Cash Flow (DCF) Model Works

Before we dig further into the specifics of the New Constructs discounted cash flow model, let’s talk about how a DCF works in general.

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Excess Cash – Invested Capital Adjustment

Most companies hold some cash—or cash equivalents in the form of investments—above this required amount. Companies hold excess cash in order to cushion against economic downturns, prepare for acquisitions, or any number of other reasons. Sometimes, past profits pile up on balance sheets and are a form of excess cash. Excess cash is not needed for the operations of a company. It is removed from our calculation of invested capital.

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How to Avoid the Worst Style Mutual Funds

Why are there so many mutual funds? The answer is because mutual fund providers are making lots of money selling them. The number of mutual funds has little to do with serving investors’ best interests.

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Buy Herbalife And Get A Piece Of the Good Life

Herbalife is a very profitable company with significant long-term competitive advantages that not only position the company to continue to create shareholder value but also to be very attractive as a potential acquisition target for large health insurers.

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Overfunded Pension Plan Assets – Invested Capital Adjustment

Overfunded pension assets are similar to excess cash, and should not be included in the calculation of return on invested capital (ROIC).

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Danger Zone 8/5/13: American Century Capital Small Cap Value Fund (ACSCX)

American Century Capital Portfolios, Inc: Small Cap Value Fund (ACSCX) is in the Danger Zone this week. ACSCX is bad news for investors from almost any angle. ACSCX has extremely high fees, low quality holdings, and a significant portion of its holdings are not consistent with its stated style exposure.

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How to Avoid the Worst Sector Mutual Funds

Picking from the multitude of sector mutual funds is a daunting task. In any given sector there may be as many as 234 different mutual funds, and there are at least 632 mutual funds across all sectors.

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Deferred Tax Assets and Liabilities – Invested Capital Adjustment

DTAs artificially raise reported assets and do not help generate operating profit while DTLs are like a source of interest-free financing. We remove the impact of DTAs and DTLs from our calculation of invested capital to ensure the more accurate measure of a firm’s return on invested capital (ROIC).

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August’s Most DANGEROUS Stocks Available to Subscribers Today

Paying customers can access August’s 40 Most Dangerous Stocks as of midnight last night. We provide 20 large/mid cap names to sell or short and 20 small cap names in this monthly newsletter.

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August’s Most Attractive Stocks Available to Subscribers Today

Paying customers can access August’s 40 Most Attractive Stocks as of midnight last night. We provide 20 large/mid cap names and 20 small cap names to buy in this monthly newsletter.

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