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See How Diligence Paid In 2011

Monday, April 30th, 2012

 

Everyone wants diligence. Few will ever turn it down. The problem is that diligence is expensive. New Constructs makes diligence cost-effective.

What do I mean by diligence?

I mean reading and analyzing the entire 10-Ks* for over 3000 companies over their entire reporting history. 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.

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.

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.

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.

Our fund research leverages our top-ranked stock picking in our Predictive Fund ratings on 7400+ ETFs and mutual funds. We also offer a free Fund Screener and reports on all 7400+ funds we cover.

*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.

See How Diligence Paid in 2012.

Disclosure: I am long LO, LLY and LRCX.

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3 Comments

  1. varadha says:

    Terrific, yet simple analysis. I’ve always been a fan of ROIC as a measure of capital efficiency and believe that no size/growth outperformance can replace the quest for efficiency.

    Sort of like a big gas guzzling v8 that needs ever increasing gallons of fuel to keep its engine running

  2. David says:

    But Angie’s $90 per user acquisition cost is going to go away. That’s what their approach probably is. How would their outlook be if that $90 cost dropped down to a total cost of $3 per user?

  3. David:

    That would be great, but cost per user acquisition is not something that’s very easy for a company to fix. ANGI can slash their marketing budget to the bone, but then they would stop acquiring new members. They would probably lose members in fact, as their membership renewal rate is at ~75% and declining. If they cut marketing expense by ~95% as you seem to be suggesting, ANGI might be able to eke out 1 year of slight profits, but they would start shedding members and losing money very quickly. ANGI’s only hope is to keep its marketing budget high and hope it can reach the scale and brand awareness to be able to sustain its business while scaling back marketing costs enough to turn a profit. The fact that ANGI’s revenue growth is slowing down even as its marketing costs keep increasing makes it very unlikely it will achieve that goal.

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