Proof Is In Our Performance thru 3Q10

There are many ways to define the qual­ity and merit of equity research. One mea­sure stands tallest: per­for­mance of stock rec­om­men­da­tions. And by that mea­sure, New Con­structs’ research is of very high qual­ity (espe­cially for the price!!).

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Google Inc Cl A (GOOG) – Attractive Rating – for Ask Matt Readers

HIDDEN GEM: GOOG has over $24,100mm in Excess Cash, a reflection of the profitability of the business and a 64% deduction to Reported Net Assets for our Invested Cap­i­tal calculation.

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Seagate Technology PLC (STX) – Up over 15% Today – one the Most Attractive Stocks for October

One of October’s Most Attractive Stocks, Seagate Technology PLC (ticker – STX) is up over 15% today. STX was added to our list of Most Attractive Stocks in September, shortly after we reviewed the company’s latest 10K and found HIDDEN GEMS.

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Private Sector to the Rescue Part 1: The Google Price Index and Better Markets, Inc.

At a time when most of the public believes political leadership to be weak, we should not focus on finding scapegoats but rather on assuming accountability to help fix problems.

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Wall Street Compensation Does Not Lie

For anyone who questions whether or not the rules of the game are controlled by those wuith the most money not the most ability, look no farther than Wall Street’s compensation.

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Proof Is In Performance Thru 3Q10 for Most Attractive and Most Dangerous Stocks

The performance of the Most Attractive and Most Dangerous Stocks continues to beat relevant benchmarks by a wide margin. Our Long/Short strategy returns 80.5% from April, 2006 through September, 2010, beating the S&P 500 by 91%, the Russell 2000 by 89.9% and the risk-free rate by 70.2%. All the details are in the report.

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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.

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Interview with Marketwatch’s Chuck Jaffe

I explain why our research is so effective at picking stocks. I also speak specifically about these stocks: WMT, JNJ, PEP, GS, RAX, S and WFMI.

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Nashville Post on New Constructs w/ Our Ratings on 23 TN Stocks

Drew Ruble of the Nashville Post recently wrote a nice article on New Constructs.

In addition to profiling our unique analytical approach, he highlights our ratings on 23 Tennessee stocks.
Drew Ruble of the Nashville Post recently wrote a nice article on 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

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Apologies for formatting issues – we will be back soon

I apologize for the formatting problems with the blog. We are working on getting it fixed as quickly as we can. All of the content is still here – just a little harder to find.
Thank you for your patience.

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Stock Pick of the Week: Sell/Short Vulcan Materials Co. (VMC) – Very Dangerous Rating

Main RED FLAG:
Very Dangerous Valuation: The current stock price of $36.89 implies VMC must grow its NOPAT at 12% com­pounded annu­ally for 40 years.
The market has set expectations very high for this stock – leaving little upside potential and lots of downside risk, especially when considering the company’s Misleading Earnings.

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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.

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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

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Munger on Accountants: “Utterly failed us…and no sign of reversal of the failure”

The reason we focus on Economic Earnings as opposed to Accounting Earnings is because Accounting Earnings are subject to too much manipulation – as Charlie Munger states below. This problem is not going away anytime soon.

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Munger on Wall Street: Easy Money Corrupts

The Munger version of that is “easy money corrupts, and really easy money tends to corrupt absolutely.”

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XBRL: Digitial Needles In the Digital Haystack

We have always known that finding data is the Footnotes is, for most investors who are without our patented Research Platform, like searching for needles in a haystack. With XBRL, the only difference is now investors can search for digital needles in a digital haystack. Funny how little things change.

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Stock Pick of the Week: Buy Microsoft Corp (MSFT) — Very Attractive Rating

HIDDEN GEMS:
1. Our dis­counted cash flow analy­sis shows that MSFT’s cur­rent val­u­a­tion (stock price of $24.73) implies that the company’s prof­its will decline by 20% and never grow again.
2. The company has $43,292mm in Excess Cash (over 20% of the market cap), which we remove from our Invested Capital calculation and which helps drive a whopping 61.6% ROIC.
3. Our eco­nomic earn­ings mod­els shows prof­its are grow­ing, not declin­ing, which makes the Risk/Reward for MSFT Very Attractive.

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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.

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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

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