HIDDEN GEM: Our detailed valuation model shows that WDC grew its “economic” profits by 226% while accounting profits grew 194% during its last fiscal year. Economic profits rose by $769mm while accounting profits rose by $912mm.
In another excellent expose “Wall Street Proprietary Trading Under Cover”, Michael Lewis exposes Wall Street’s plan to exploit loopholes in the laws and regs to continue proprietary trading, the activity that was the primary downfall of Bear Stearns and Lehman Brothers.
RED FLAG: The main driver of the difference between Economic and Accounting earnings is FDX’s $11.9bn of off-balance sheet debt, a big number compared to $19.7bn in Net Assets and $25.6bn of market value.
Sandridge Energy (SD) – Free Report, for Ask Matt Readers, Highlighting a Major Red Flag in the Footnotes
Here is our free report on Sandridge Energy for Ask Matt readers. Our analysis of the Financial Footnotes reveals a major RED FLAG: the company has written off over $3.4bn in assets in just the last two years.
HIDDEN GEM: Our detailed valuation model shows that IBM grew its “economic” profits more than it accounting profits during its last fiscal year. Economic profits rose by $1.15bn while accounting profits rose by $1.09bn.
Accounting data was not designed for equity investors, but for debt investors. “Earnings, earnings per share and earnings growth are misleading measures of corporate performance.”(from page 66 in The Quest For Value by Bennett Stewart, Harper Collins 1991.)
Overall, the Risk/Reward of investing in Yahoo’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.
HIDDEN GEM: Our detailed valuation model shows that XLNX grew its “economic” profits by nearly $14mm during its last fiscal year while it reported an $18mm decline in accounting profits.
The United States Patent and Trademark Office awarded us patent #7,752,090, titled: System and Method For Reversing Accounting Distortions and Calculating A True Value of a Business.
New Constructs has a strong reputation on Wall Street and with individual investors. We have been recognized for our analytical rigor (options, hidden debt, write-offs, red flags) as well as the stock-picking benefits of our hard work and analysis.
As highlighted in LPL Group excellent “Mid-Year Outlook for 2010”, the economy is moving from ‘recovery’ mode to ‘expansion’ mode, which is very different from moving from ‘recovery’ back to ‘recession’ – a prediction made by many attention-seeking alarmists these days. We are still growing, just not as fast.
Here is a free copy of our report on SCHW for Ask Matt readers. This report provides details behind Matt’s analysis of SCHW in his recent article in USA Today: “Charles Schwab stock: Too close to call.” Click here for our report: Charles Schwab Corp (SCHW) Neutral Risk/Reward Rating
Hidden Gem – GPS: economic earnings are rising faster than reported accounting earnings b/c the company lowered the capital employed to run the business. GAAP earnings do not capture increase capital efficiency of the business.
TheStreet.com recently published three articles quoting me on SIRI. Andrea Tse called and, after reviewing our models on SIRI, I told her that the stock was Dangerous because:
This blog will show how to:
1. Uncover the unadulterated facts about corporate profitability and valuation.
2. Avoid falling prey to misinformation about stocks that inundates the airwaves, papers and most research channels.
3. Develop intelligent investment strategies.