3 Reasons Why Amazon’s “Cash Flow” Is A Trap

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In truth, neither AMZN’s $5.5 billion of operating cash flow nor the $1 billion in free cash flow that bulls claim reflect the actual economics of the business.

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How to Value a Stock, Step 2: Invested Capital

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The second step to gauge the value of a company is to determine the sum of all cash that has been invested in a company over its life without regard to financing form or accounting name. We call this Invested Capital.

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Amazon’s New Smartphone Spells Trouble for Apple (AAPL)

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A high quality smartphone from Amazon that undercuts higher-priced competitors could mean more serious trouble for Apple’s iPhone and the company’s declining profit margins.

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The Disconnect between Investment Theory and Practice

A disconnect between investment theory and investment practice exists and is manifested in the way investors should value stocks versus the way they actually do value stocks.

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September’s Most Attractive Stocks Available to the Public Today

New Constructs released September’s Most Attractive Stocks report to the public today.

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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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Overfunded Pension Plan Assets – Invested Capital Adjustment

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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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Deferred Compensation Assets – Invested Capital Adjustment

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Deferred compensation plans delay employee compensation until a later date. The assets held for these plans are used to compensate employees in the future, not to generate profits for the company. As such, they should not be factored into the calculation of a company’s return on invested capital (ROIC).

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July’s Most Attractive Stocks Available to the Public Today

The Most Attractive Stocks portfolio (+1.9%) outperformed the S&P 500 (+0.4%) last month.

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Off-Balance Sheet Reserves – Invested Capital Adjustment

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Reported assets don’t tell the whole story of the capital invested in a business. Accounting rules provide numerous loopholes that companies can exploit to hide issues and obscure the true amount of capital invested in a business over its life.

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Implied Interest For Operating Leases – NOPAT Adjustment

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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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June’s Most Attractive Stocks Available to the Public Today

New Constructs released May’s Most Attractive Stocks report to the public today.

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Danger Zone 6/3/2013: Perma-Bears and Bubble Alarmists

I am optimistic about the U.S. economy and I don’t believe we are in bubble. Too many investors and economists are looking at the economy the wrong way.

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The Truth Behind AAPL’s Numbers

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This article provides some empirical evidence behind my putting Apple (AAPL) in the Danger Zone last week because its return on invested capital (ROIC) is outrageously high. That fact underscores why valuing this company or any other with the expectation that such a high ROIC was sustainable would be a mistake.

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Why I’m Bullish And We Are Not In a Bubble

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I believe the US economy is undergoing a restructuring where we, as a society, are becoming radically more productive. I think that we are entering a new economic paradigm of productivity in both our corporate and labor markets. In this new paradigm, we achieve enough gains in productivity to offset the inflationary forces of QE.

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Footnotes Diligence Drives CSCO Pick

If you bought Cisco Systems Inc (CSCO) last August when I recommended it to investors, or when I recommended it again in January, or any time between May 10, 2012 and now when the stock has had my Very Attractive rating, then today has been a good day for you.

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Danger Zone 5/13/2013: Apple Inc. (AAPL)

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Too many investors are looking at AAPL through the rear view mirror and assume that its sky-high profits and return on invested capital (ROIC) are sustainable. As I detail in my CNBC interview, Apple is not cheap and investors should not underestimate the impact of losing Steve Jobs.

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May’s Most Attractive Stocks Available to the Public Today

New Constructs released May’s Most Attractive Stocks report to the public today.

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Buy CAT: A Global Leader Trading at a 3rd-World Discount

Investors should pay little mind to recent short-term trends such as falling EPS, estimates and stock price and focus on the strong long-term fundamentals of this business.

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Coach Has Great Management Skills

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It is tough to like any retail stocks these days given the dour economic outlook around the world. It is just as tough to find any good Consumer Discretionary ETFs and mutual funds, which rank 7th out of ten sectors (more on sector rankings here). One can hardly find any retail companies whose economic earnings…

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