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Diligence Institute

Highlights From New Constructs Investment Research

More Pain to Come for LinkedIn

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Insiders are getting out of this stock, and you should too. LNKD has slowing growth, low profits, and little market momentum left to prop up the price.

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Danger Zone: Workday (WDAY)

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Momentum was the only thing supporting WDAY’s stock, and now that the momentum is gone, look out below.

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New Stocks Make Most Attractive/Dangerous Lists For April

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Our Most Attractive and Most Dangerous stocks for April were made available to the public at midnight on Wednesday.

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April’s Most DANGEROUS Stocks Available to Subscribers Today

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Paying customers can access April’s 40 Most Dangerous Stocks as of Wednesday, April 2. We provide 20 large/mid cap names… Read more >>

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Netflix (NFLX): Even More Dangerous

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In November of last year, Netflix (NFLX: ~$355/share) landed in the Danger Zone after rising 363% year-to-date on promising quarterly… Read more >>

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Danger Zone: Value Investors

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Check out this week’s Danger Zone Interview with Chuck Jaffe of Money Life and MarketWatch.com.
Value investors are in the… Read more >>

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Danger Zone: Dunkin Brands Group (DNKN)

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DNKN’s illusory growth in accounting earnings has driven the stock up nearly 40% while the S&P 500 is up only about 20% over the past year. Our diligence reveals that while reported earnings are up, DNKN’s economic earnings are in decline. Future growth expectations are overblown as well because the company’s plans to expand outside of the Northeast pit it against formidable, entrenched competitors.

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Danger Zone: Tuesday Morning (TUES)

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Any brick and mortar retailer carries some risk in this environment, but investors who really want exposure to this sector should look for higher quality companies than TUES. Other retailers have superior profitability metrics, better branding and e-commerce capabilities, and a cheaper valuation. The only reason to touch TUES is to short it.

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New Stocks Make Most Attractive/Dangerous Lists For March

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Momentum chasing is never a good strategy. RCL significantly outperformed the market last year, while F lagged it slightly, but don’t expect those trends to continue in 2014 for either stock.

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Danger Zone: AOL (AOL)

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AOL is not executing well in its reinvention as a digital media company and can’t hope to fulfill the growth expectation implied by its valuation.

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Danger Zone: Comcast (CMCSA)

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The Time Warner deal is a smokescreen for the fact that Comcast faces many problems to which it does not have an answer. The market already understands that CMCSA has overpaid, which is why the stock is down 5% since the acquisition was announced. And the price will drop further as the market catches on to the larger competitive issues that Comcast faces.

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New Constructs Initiates Facebook (FB) Coverage At Neutral

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Last week, Facebook (FB) filed its second annual report as a publicly traded company, which allows us to initiate coverage. The company’s strong return on invested capital (ROIC) and profit growth offset the stock’s expensive valuation (~$70/share) to earn our Neutral rating.

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Danger Zone: Small Cap Value Funds/Investors

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Over a third of all Small Cap Value stocks earn a Neutral-or-better rating, but 98% of all funds in this style earn a Dangerous-or-worse rating. Fund managers are doing a poor job of allocating to good-quality stocks.

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New Stocks Make Most Attractive/Dangerous Lists For February

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Our Most Attractive stocks have high and rising return on invested capital (ROIC) and low price to economic book value ratios. Most Dangerous stocks have misleading earnings and long growth appreciation periods implied in their market valuations.

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Danger Zone: Callidus Software (CALD)

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Compared to its competitors, CALD has less scale, inferior profitability metrics, and fishy accounting to boot. The stock’s valuation is so high that our DCF model can hardly make sense of it. The stock seems to be trading largely on the hopes of an acquisition.

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No Progress From Amazon in 2013

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Amazon (AMZN: $356/share) filed its annual Form 10-K last week. Our analysts have picked through the financial footnotes and fine print. 2013 results reinforce my bearish thesis from May of 2013 that AMZN’s valuation implies a more unrealistic level of growth and profitability than investors realize.

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February’s Most DANGEROUS Stocks Available to Subscribers Today

February’s Most DANGEROUS Stocks Available to Subscribers Today

Paying customers can access February’s 40 Most Dangerous Stocks as of Wednesday, February 5. We provide 20 large/mid cap names… Read more >>

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Danger Zone: Energy Sector Funds

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Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life and MarketWatch.com.
Energy sector ETFs and mutual… Read more >>

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Don’t Trust the Dead Cat Bounce in Angie’s List

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Back in September, we called out the flawed business model of Angie’s List (ANGI). Our call was quickly vindicated, as… Read more >>

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Danger Zone: Ashland (ASH)

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Specialty chemicals producer Ashland Inc. (ASH) is in the Danger Zone this week. Those that consider ASH a “value” stock are mistaken. The stock is cheap by traditional metrics such as price to earnings, but a closer look reveals the value to be an illusion.

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