Nearly all of the investing world ignores 10-K season. You rarely hear anything about 10-Ks in Wall Street research. Coverage by the media is light to say the least.
Yet, 10-Ks* contain the most important financial information that companies provide all year. Unlike press releases and 10-Qs, only the 10-Ks contain a complete set of the Financial Footnotes. And only in these footnotes can one find the full set of data required to assess the true profitability and valuation of stocks.
We, at New Constructs, will research the footnotes of 2000+ new 10-Ks in the next couple of weeks.
From this mountain of data, we will derive proprietary research that delivers some of the best stock picks of any research firm. Just as we did last year.
For example, after reviewing Eastman Kodak’s (EKDKQ.PK) 2010 10-K in March of 2011, I was able to predict it would go bankrupt. See “Dead Company Walking“. For similar reasons, we told clients that the same would happen to American Airlines (AAMRQ.PK). I was proven right about 10 months later on both companies. Why did it take 10 months? Probably because that is how long the companies were able to massage their quarterly accounting results to cover the truth.
Cash is a fact, earnings are an opinion. And the footnotes are the only place to get the facts. My free stock screener delivers my quality-of-earnings and valuation ratings on 3000+ stocks – updated daily.
Other examples of how analyzing the complete 10-K for companies enabled me to make strong stock predictions. Note the articles below are just a sample. We provided clients with more.
- Short recommendations:
- Principal Financial Group (PFG) playing with reserves to overstate earnings. Down 20% since I posted the March 8, 2011 article on my blog.
- Zumiez (ZUMZ) monkeyed with depreciation assumption to overstate earnings. Dropped 40% a few months after I posted the March 29, 2011 article on my blog.
- VirnetX Holdings (VHC) dropped about 40% a few months after I posted the April 12, 2011 article on my blog.
- Morgan Stanley (MS) is down 30% since my May 3, 2011 article.
- Citigroup (C ) is down about 25% since my May 17, 2011 article.
- Intel (INTC) is up about 27% since my March 15, 2011 article.
- Lorillard (LO) is up over 10$ since my May 24, 2011 article.
- Wal-Mart (WMT) is up 20% since my June 28, 2011 article.
- Eli Lily (LLY) us up 14% since my April 19, 2011 article.
- Lam Research (LRCX) is up over 10% since my September 27, 2011 article.
Maybe it is time more people started paying attention to 10-Ks, or, at least, to research that focuses on analyzing the financial footnotes in 10-Ks.
It is not an easy task. My firm, New Constructs, has developed proprietary technology and patented systems around doing it efficiently.
*10-Ks are the official version of the annual report filed with the Securities and Exchange Commission (SEC). These documents are anywhere from 100 to 1000 pages and contain the most important financial data available on publicly-traded companies. No other reports come close to rivaling the amount of relevant information in 10-Ks.
Disclosure: I am long INTC, LO, LLY and LRCX.