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Stock Pick of the Week: JDA Software Group Inc (JDAS) – Very Dangerous Rating

Tuesday, November 30th, 2010 Stock Pick of the Week: JDA Software Group Inc (JDAS) – Very Dangerous Rating

Red Flags:
1. Mis­lead­ing earn­ings: JDAS reported a $14.6mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $12.9mm (a dif­fer­ence of $27.5mm or 155% of reported net income).
2. Very dan­ger­ous val­u­a­tion: stock price of $27 implies JDAS must grow its NOPAT at over 20% com­pounded annu­ally for 10 years. A 10-year growth appre­ci­a­tion period with a 20%+ com­pound­ing growth rate sets expectations for future cash flow performance quite high.
3. Free Cash Flow was -$203mm or -15% of the company’s enterprise value last year.
4. Asset write-offs of $21mm or 3% of net assets – this means that management has written off at least $0.03 of assets for every $1 on the current balance sheet. Writing off assets is the opposite of creating shareholder value as it reflects management’s inability to derive any profits for the investments it makes with shareholder funds.
5. Off-balance sheet debt of $40mm or 6% of net assets.
6. Outstanding stock option liability of $13mm or 1% of current market value.

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Buy The Travelers Co (TRV) – Very Attractive Rating

Monday, November 22nd, 2010 Buy The Travelers Co (TRV) – Very Attractive Rating

HIDDEN GEMS:
1. About $29 million in non-operating expenses (after-tax) cause reported earnings to be understated.
2. Our dis¬counted cash flow analy¬sis shows that TRV’s cur¬rent val¬u¬a¬tion (stock price of $55.49) implies that the company’s profits will decline by 30% and never grow again.
3. The company grew its economic earn¬ings by $827mm during its last fiscal year.

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Bernanke’s Masterstroke Puts the Ball In the Fiscal Policy Court

Friday, November 19th, 2010 Bernanke’s Masterstroke Puts the Ball In the Fiscal Policy Court

Contrary to nearly every headline you read about monetary policy these days, I believe it is quite possible the Fed Chairmen Ben Bernanke is performing quite well and much better than any of his recent predecessors. In fact, I think he is directing monetary policy with unprecedented precision and skill.

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Western Digital Corp (WDC) – free report for Ask Matt, Very Attractive Rating

Friday, November 19th, 2010 Western Digital Corp (WDC) – free report for Ask Matt, Very Attractive Rating

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.

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Initiation of Coverage of ETFs

Thursday, November 18th, 2010 dreamstimefree_6271799_handHoldingLightBulb

Today we initiated coverage of ETFs for all major sectors and Indices. Free samples of the initiation reports are here. These reports deliver strategic insights into entire sectors and markets.

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How Artificially Low Interest Rates Harm Economies in the Long Term

Wednesday, November 17th, 2010 Source: Novo Capital Management, LLC as adapted from The Quest For Value by Bennett Stewart.

Maintaining artificially low interest rates or excessive money supply does permanent damage to economies in the medium and long-term because it delays creative destruction, the process of replacing low-return investments with higher-return investments. To help illustrate this point, I present the “Investment Opportunity Schedule” in Exhibit 1

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Stock Pick of the Week: Akamai Technologies Inc (AKAM) – Very Dangerous Rating

Tuesday, November 16th, 2010 Stock Pick of the Week: Akamai Technologies Inc (AKAM) – Very Dangerous Rating

RED FLAGS:
1. Misleading Earnings: AKAM reported a $1mm increase in GAAP earnings while our model shows economic earnings declined by $10mm (a difference of $11mm or 7% of reported net income).
2. Very Dangerous Valuation: Stock price of $47 implies AKAM must grow its NOPAT at over 20% com¬pounded annu¬ally for 15 years. A 15-year growth appreciation period with a 20%+ compounding growth rate sets expectations for future cash flow performance quite high.
3. Asset write-offs of $2,000mm or 102% of Net Assets – this means that management has written off at least $1 of assets for every $1 on the current balance sheet. Writing off assets is the opposite of creating shareholder value as it reflects management’s inability to derive any profits for the investments it makes with shareholder funds.
4. Off-balance sheet debt of $128mm or 7% of Net Assets.
5. Outstanding Stock Option Liability of $212mm or 3% of current market value.

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S&P 500 Is Fully Valued

Monday, November 15th, 2010 S&P 500 Is Fully Valued

The Risk/Reward of the entire S&P 500 gets our Neutral Rat­ing. Our recently pub­lished Index Bench­mark report on the S&P 500 offers unique insights into the under­ly­ing prof­itabil­ity and val­u­a­tion of all the com­pa­nies com­prised by this index. It also offers bench­marks for (1) investors con­sid­er­ing buy­ing ETFs or Index Funds based on the S&P 500 and for (2) com­par­ing indi­vid­ual stocks to the S&P 500.

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Small Cap Stocks Are Dangerous

Monday, November 15th, 2010 Small Cap Stocks Are Dangerous

The Risk/Reward of the entire Russell 2000 gets our Dangerous Rating. Our recently published Index Benchmark report on the Russell 2000 offers unique insights into the underlying profitability and valuation of all the companies comprised by this index. It also offers benchmarks for (1) investors considering buying ETFs or Index Funds based on the Russell 2000 and for (2) comparing individual stocks to the Russell 2000.

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Stock Pick of the Week: Buy Colgate-Palmolive Co (CL) – Very Attractive Rating

Tuesday, November 9th, 2010 Stock Pick of the Week: Buy Colgate-Palmolive Co (CL) – Very Attractive Rating

HIDDEN GEMS:
1. About $250 million in non-operating expenses (after-tax) cause reported earnings to be understated during the last fiscal year.
2. Our discounted cash flow analysis shows that CL’s current valuation (stock price of $77.52) implies that the company’s profits will decline by 7% and never grow again.
3. The company grew its economic earnings by $229mm (14% increase) during its last fiscal year.

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Stock Pick of the Week: Short Rackspace Hosting Inc (RAX) – Ignore the Takeover Hype

Tuesday, November 2nd, 2010 Stock Pick of the Week: Short Rackspace Hosting Inc (RAX) – Ignore the Takeover Hype

RED FLAGS:
1. Mis­lead­ing Earn­ings: RAX reported a $30mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $13mm (a dif­fer­ence of $43mm or 7% of rev­enue).
2. Very Dan­ger­ous Val­u­a­tion: Stock price of $25.636 implies RAX must grow its NOPAT at 25% com­pounded annu­ally for 17 years. A 17-year Growth Appre­ci­a­tion Period with a 25% com­pound­ing growth rate is quite a high stan­dard to beat, as per my post on How To Make Money Pick­ing Stocks.
3. Outstanding Stock Option Liability of $205mm or 6.5% of current market value

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