The SEC Is Starting To Worry About Non-GAAP Earnings


We’ve been sounding the alarm on non-GAAP earnings for several years now. Companies exploited the wide leeway granted by the SEC to present their business in a more favorable light.

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Economic Earnings: Explanation & Examples

To derive economic earnings, 30+ adjustments must be made to accounting earnings. These adjustments remove items hidden in the footnotes and MD&A of annual filings and close loopholes within GAAP accounting.

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Danger Zone: Compensation Committees


We know that Valeant is not the only company with misaligned executive incentives. There are many others, many of which have already been put in the Danger Zone and some who will go into the Danger Zone soon. This week, however, compensation committees land in the Danger Zone because of the role they play in creating the problems that lead to shareholder value destruction.

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Danger Zone: Valeant Pharmaceuticals (VRX)


We’ve been highlighting the dangers of Valeant for over two years and we do not see them abating. As long as management is incentivized to destroy shareholder value, Valeant is in the Danger Zone.

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The Ugly Truth About Netflix: Investors Beware


It is almost becoming an expected event every quarter: Netflix releases quarterly earnings amid much speculation about its future, and the price soars.

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How to Value a Stock, Step 3: Economic Earnings


This article is the third in a four part series that walks readers through how to rate and value a stock. Our third step to gauge the value of a company is to determine its economic earnings.

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GAAP Opinion versus Economic Fact

GAAP financial statements generally fail to meet equity investors’ analytical needs. We try to calculate something that does.

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July’s Most DANGEROUS Stocks Available to the Public

New Constructs released July’s Most Dangerous Stocks report to the public today.

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Off-Balance Sheet Debt – Invested Capital Adjustment


Investors who ignore off-balance sheet debt are not holding companies accountable for all of the capital invested in their business. By adding back off-balance sheet debt to invested capital, one can get a true picture of the value that management is creating for shareholders. Diligence pays.

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Footnotes Adjustments for Earnings & Valuation Diligence

This article details the uniquely rigorous diligence behind each of our ratings on 3000 stocks, 7000 mutual funds and 400 ETFs. It contains reports on all the adjustments we make to convert GAAP data to economic earnings and derive true shareholder value in a discounted cash flow model.

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Implied Interest For Operating Leases – 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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Non-Operating Income Hidden in Operating Earnings – NOPAT Adjustment


Non-operating items in operating income are unusual gains that don’t appear on the income statement because they are bundled in other line items. Without careful footnotes research, investors would never know that these non-recurring income items distort GAAP numbers by artificially raising operating earnings.

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February’s Most DANGEROUS Stocks Available to the Public

New Constructs released February’s Most Dangerous Stocks report to the public today.

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Top Stock Picks & Shorts: Moneylife Radio Interview w/ Chuck Jaffe

Listen in on my 15 minute interview describing the rigorous diligence New Constructs applies to every rating on the stocks, ETFs and mutual funds we cover.

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Bank Of America (BAC): Very Dangerous Rating — for Ask Matt Readers

Bank Of America (BAC) gets our Very Dangerous rating because it has misleading earnings and a very expensive valuation. Here is my free report on BAC.

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Registered Rep Interview on Economic vs Accounting Earnings

David A. Geracioti, Editor-In-Chief of Registered Rep magazine, recently invited me for an interview on why economic earnings matter when selecting stocks, mutual funds and ETFs.

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Buy LRCX: More Value Than Meets the Eye


Most of my research and publishing tends to focus on companies manipulating accounting rules to make their reported earnings look better than the real economic cash flows of their business.
It is unfortunately rare that I find a company whose economic earnings are outpacing the reported accounting results and whose stock is cheap.
One such company is Lam Research (LRCX – very attractive rating). One of September’s most attractive stocks, LRCX offers investors hidden value.

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Sell Baker Hughes Before The Stock Goes Up In Fumes


It is only a matter of time before oil and gas stocks stop moving with the price of oil and start reflecting their underlying economics.
When this happens, Baker Hughes (BHI – “very dangerous” rating) will be among the stocks that fall the hardest.

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Nucor Corporation (NUE) — Dangerous Risk/Reward Rating for Ask Matt Readers

The valuation of NUE’s stock implies the company will grow its after-tax cash flow (NOPAT) by nearly 20% compounded annually for 20 years.

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PowerShares Leads The “Most Attractive” ETFs


PowerShares Buyback Achievers (PKW) is the #1 “most attractive” ETF out of the 375+ ETFs we ranked according to our predictive rating system.

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