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Highlights From New Constructs Investment Research

For Ask Matt readers: Ford (F) — Dangerous Rating

For Ask Matt readers: Ford (F) — Dangerous Rating

Ford gets our Dangerous Rating. This means F has poor quality-of-earnings and an expensive valuation. For example, F’s ROIC at 0.6% is in our Bottom Quintile. And the valuation of the current stock price ($15.07) implies the company will grow its profits at 10% compounded annually for over 40 years. The takeaway: avoid this stock.

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The Ride Is Over: Sell Ariba Inc. (ARBA)

The Ride Is Over: Sell Ariba Inc. (ARBA)

Over the past 10 years, ARBA appears as quite a success story and one of the few ‘internet bubble’ companies to survive and reach profitability, on a GAAP accounting basis at least. Looking beyond the reported accounting results, however, reveals that ARBA is not quite as profitable a company as it seems, and its valuation has out-grown its profits by a wide margin – the required combination of factors for making February’s list of most dan­ger­ous stocks.

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Stock Pick of the Week: Buy Discover Financial Services (DFS)- Very Attractive Rating

Stock Pick of the Week: Buy Discover Financial Services (DFS)- Very Attractive Rating

HIDDEN GEMS:
1. Our dis­counted cash flow analy­sis shows that DFS’s cur­rent val­u­a­tion (stock price of $21.80) implies that the company’s prof­its will decline by 40% and never grow again.
2. Eco­nomic earn­ings are growing faster that reported accounting earnings.
3. Free cash flow of $2.8bn or 24% of its enterprise value during the last fiscal year.

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For Ask Matt readers: Abbot Laboratories (ABT) – Attractive Rating

For Ask Matt readers: Abbot Laboratories (ABT) – Attractive Rating

HIDDEN GEM: ABT’s current stock price (~$45 per share) implies the company’s profits will permanently decline by 20%. In other words, the market is not only giving no credit for future profit growth, it is predicting a significant (20%) decline in profits.

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Hedge Against A Market Sell-Off; Sell NYSE Euronext (NYX)

Hedge Against A Market Sell-Off; Sell NYSE Euronext (NYX)

Misleading earnings: NYX reported a $957mm increase in GAAP earnings while our model shows economic earnings declined by $641mm (a difference of $1,599mm or 34% of 2009 revenues during the last fiscal year. The majority of this disconnect comes from asset-write offs of $1,249mm, which equals 12% of reported net assets.

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The Good, the Bad and the Ugly In Consumer Staples ETFs

ConsumerStaplesETFsRanks

If you want to be in a sector ETF, the Consumer Staples Sector is the only place to shop. However, not all ETFs are made the same. Despite the predominance of Attractive-rated stocks in the Consumer Staples Sector, there are still ETFs that investors should be careful to avoid.

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Stock Pick of the Week: Buy Kirkland’s Inc. (KIRK)- Very Attractive Rating

Stock Pick of the Week: Buy Kirkland’s Inc. (KIRK)- Very Attractive Rating

HIDDEN GEMS:
1. Our discounted cash flow analysis shows that KIRK’s current valuation (stock price of $13.25) implies that the company’s profits will decline by 50% and never grow again.
2. Economic earnings are growing faster that reported accounting earnings.
3. Free cash flow of $32.2mm or 12.4% of its enterprise value during the last fiscal year.

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