Everyone wants diligence. The problem is that diligence is expensive. I make diligence cost-effective.
What do I mean by diligence?
I mean reading and analyzing the entire 10-Ks* for over 3000 companies over their entire reporting history. 10-Ks contain the most important financial information that companies provide all year. Unlike press releases and 10-Qs, only the 10-Ks contain a complete set of the financial footnotes. And only in these footnotes can one find the full set of data required to assess the true profitability and valuation of stocks.
From this mountain of data, we will derive proprietary research that delivers some of the best stock picks of any research firm. Just as we did last year: See How Diligence Paid In 2011.
For example, after reviewing Scripps Networks Interactive (SNI) 2011 10-K in March of 2012, I revealed that the company’s economic earnings grew faster (up 50%) than its GAAP net income was (up only 1%) for 2011. SNI is up almost 30% since my March 27, 2012 article. For similar reasons, we told clients that Amgen, Inc. (AMGN) was an attractive investment. AMGN is up almost 40% since April 17, 2012.
Other examples of how analyzing the complete 10-K for companies enabled me to make strong stock predictions. Note the articles below are just a sample. We provided clients with more.
- Short/sell warnings:
- Intersil Corporation (ISIL) had asset write-downs equivalent to over 75% of total net assets. Down almost 22% since my April 25, 2012 article.
- Plug Power (PLUG) had not earned positive economic profits in over 13 years. Down almost 87% since my May 3, 2012 article.
- Digital Realty Trust (DLR) is down almost 15% since my July 18, 2012 article.
- Boston Properties (BXP) is down about 7% since my September 4, 2012 article.
- Research Frontiers, Inc. (REFR) is down about 35% since my October 9, 2012 article.
- Buy recommendations:
- Altria Group (MO) is up about 13% since my February 28, 2012 article.
- InterDigital Inc. (IDCC) is up about 72% since my May 3, 2012 article.
- Western National Refining (WNR) is up 63% since my July 12, 2012 article.
- Cisco Systems (CSCO) is up 27% since my August 14, 2012 article
- Western Digital (WDC) is up over 43% since my December 4, 2012 article.
Maybe it is time more people started paying attention to 10-Ks, or, at least, to research that focuses on analyzing the financial footnotes in 10-Ks.
It is not an easy task. My firm, New Constructs, has developed proprietary technology and patented systems around doing it efficiently.
*10-Ks are the official version of the annual report filed with the Securities and Exchange Commission (SEC). These documents are anywhere from 100 to 1000 pages and contain the most important financial data available on publicly-traded companies. No other reports come close to rivaling the amount of relevant information in 10-Ks.
Sam McBride contributed to this report
Disclosure: David Trainer owns WNR, CSCO, and WDC. Sam McBride and David Trainer receive no compensation to write about any specific stock, sector, or theme.