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4Q Best & Worst ETFs & Mutual Funds – by Style – Recap

4Q Best & Worst ETFs & Mutual Funds – by Style – Recap

This article provides quick access to all our 4Q reports on Style funds. I also provide a link to all of our 4Q sector reports.

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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 Apollo Group Inc cl A (APOL)- Very Attractive Rating

Stock Pick of the Week: Buy Apollo Group Inc cl A (APOL)- Very Attractive Rating

HIDDEN GEMS:
1. Our discounted cash flow analysis shows that APOL’s current valuation (stock price of $42.31) implies that the company’s profits will decline by 60% and never grow again.
2. Economic earnings are higher than reported accounting earnings.
3. Excess cash of $1,201mm or about 20% of its market cap

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Buy The Travelers Co (TRV) – Very Attractive Rating

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

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

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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Stock Pick of the Week: Buy Bristol Myers Squibb Co (BMY) – Very Attractive Rating

Stock Pick of the Week: Buy Bristol Myers Squibb Co (BMY) – Very Attractive Rating

HIDDEN GEMS:
1. Our dis­counted cash flow analy­sis shows that BMY’s cur­rent val­u­a­tion (stock price of $27.16) implies that the company’s prof­its will decline by 35% and never grow again.
2. The com­pany grew its eco­nomic earn­ings by $307.5mm (12% increase) dur­ing its last fis­cal year.
3. The com­pany has $9,507mm in Excess Cash, which we remove from our Invested Cap­i­tal cal­cu­la­tion. $9,507mm mil­lion is more than 20% of BMY’s market cap.

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Apple Inc (AAPL) — Attractive Rating — for Ask Matt Readers

Apple Inc (AAPL) — Attractive Rating — for Ask Matt Readers

HIDDEN GEM: AAPL’s economic earnings rose more than its accounting earnings during the last fiscal year. Economic earnings rose by $3,576 while accounting earnings rose by $2,401. And the company has $31,849mm in Excess Cash, a reflec­tion of the strong prof­itabil­ity of the busi­ness.

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Stock Pick of the Week: Sell/Short CB Richard Ellis Group, Inc. (CBG) — Very Dangerous Rating

Stock Pick of the Week: Sell/Short CB Richard Ellis Group, Inc. (CBG) — Very Dangerous Rating

RED FLAGS:
Mis­lead­ing Earn­ings: CBG reported a $1,045mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $358mm.
Very Dan­ger­ous Val­u­a­tion: Stock price of $19.06 implies CBG must grow its NOPAT at 20% com­pounded annu­ally for 15 years. Has any company ever done that, much less a commercial real estate company?

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Google Inc Cl A (GOOG) – Attractive Rating – for Ask Matt Readers

Google Inc Cl A (GOOG) – Attractive Rating – for Ask Matt Readers

HIDDEN GEM: GOOG has over $24,100mm in Excess Cash, a reflection of the profitability of the business and a 64% deduction to Reported Net Assets for our Invested Cap­i­tal calculation.

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Private Sector to the Rescue Part 1: The Google Price Index and Better Markets, Inc.

dreamstimefree_310726_upGraph

At a time when most of the public believes political leadership to be weak, we should not focus on finding scapegoats but rather on assuming accountability to help fix problems.

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Stock Pick of the Week: Buy Schiff Nutrition Intl (WNI) — Very Attractive Rating – Small Cap Special

Stock Pick of the Week: Buy Schiff Nutrition Intl (WNI) — Very Attractive Rating – Small Cap Special

HIDDEN GEMS:
1. Our dis­counted cash flow analy­sis shows that WNI’s cur­rent val­u­a­tion (stock price of $7.89) implies that the company’s prof­its will decline by 25% and never grow again.
2. The com­pany grew its economic earnings more than its reported earnings. Economic earnings rose by $9.1mm (506% increase) while Net Income rose by only $8.1mm (79% increase) during its last fiscal year.
3. The com­pany has $42mm in Excess Cash, which we remove from our Invested Cap­i­tal cal­cu­la­tion. $42 mil­lion is 20% of WNI’s mar­ket cap.

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Stock Pick of the Week: Sell/Short Vulcan Materials Co. (VMC) – Very Dangerous Rating

Stock Pick of the Week: Sell/Short Vulcan Materials Co. (VMC) – Very Dangerous Rating

Main RED FLAG:
Very Dangerous Valuation: The current stock price of $36.89 implies VMC must grow its NOPAT at 12% com­pounded annu­ally for 40 years.
The market has set expectations very high for this stock – leaving little upside potential and lots of downside risk, especially when considering the company’s Misleading Earnings.

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Stock Pick of the Week: Buy Microsoft Corp (MSFT) — Very Attractive Rating

Stock Pick of the Week: Buy Microsoft Corp (MSFT) — Very Attractive Rating

HIDDEN GEMS:
1. Our dis­counted cash flow analy­sis shows that MSFT’s cur­rent val­u­a­tion (stock price of $24.73) implies that the company’s prof­its will decline by 20% and never grow again.
2. The company has $43,292mm in Excess Cash (over 20% of the market cap), which we remove from our Invested Capital calculation and which helps drive a whopping 61.6% ROIC.
3. Our eco­nomic earn­ings mod­els shows prof­its are grow­ing, not declin­ing, which makes the Risk/Reward for MSFT Very Attractive.

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Stock Pick of the Week: Sell/Short CBS Class B (CBS) Very Dangerous Rating

Stock Pick of the Week: Sell/Short CBS Class B (CBS) Very Dangerous Rating

CBS’s get our Very Dan­ger­ous Rating. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price.
RED FLAGS:
1. Mis­lead­ing Earn­ings: CBS reported a $11,899mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $548mm.
2. Underfunded Pensions of $2,239mm (20% of market value)
3. Asset-write-offs of $10,559mm in asset write-offs (50% of Net Assets and nearly 100% of the market value)
4. High Valuation: market price implies CBS must grow its revenue at 10% com­pounded annu­ally for 23 years and increase its ROIC from 2.4% to 6% over the same time frame.

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icad Inc (ICAD) — free report for Ask Matt, Dangerous Rating

icad Inc (ICAD) — free report for Ask Matt, Dangerous Rating

icad (ICAD) gets a Dan­ger­ous Rat­ing because of these RED FLAGs:

1. Very Expensive valuation: current stock price implies the company will grow revenues at 20% compounded annually for the next 10 years while also improving ROIC from -3.7% to 1.5% within the same time frame.
2. Option Liabilities: of $2.1mm or 3% of the current market value
3. Asset-write-offs: $4.4mm or 7% of Net Assets

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Stock Pick of the Week: Buy Seagate Technology (STX) – Very Attractive Rating

Stock Pick of the Week: Buy Seagate Technology (STX) – Very Attractive Rating

HIDDEN GEM: Our detailed dis­counted cash flow analy­sis shows that STX’s cur­rent val­u­a­tion (stock price of $11.24) implies that the company’s prof­its will decline by 80% and never grow again. Our eco­nomic earn­ings model shows prof­its are grow­ing, not declin­ing, which makes the Risk/Reward for STX Very Attractive.

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Stock Pick of the Week: Sell/Short Capital One Financial (COF)

Stock Pick of the Week: Sell/Short Capital One Financial (COF)

The Risk/Reward of invest­ing in Capital One’s stock looks Very Dan­ger­ous to me. There is lots of down­side risk given the Mis­lead­ing Earn­ings and there is lit­tle upside reward given the already-rich expec­ta­tions embed­ded in the stock price.
RED FLAGS:
1. Mis­lead­ing Earn­ings: COF reported a $399mm increase in GAAP earn­ings while our model shows eco­nomic earn­ings declined by $1,783mm.
2. The company’s ROIC is in the Bot­tom Quin­tile of all the com­pa­nies we cover.
3. Stock price of $40.69 implies COF must grow its NOPAT at 15% com­pounded annu­ally for 15 years.

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Citigroup — free report for Ask Matt, Dangerous Rating

Citigroup — free report for Ask Matt, Dangerous Rating

Dangerous Rating with several RED FLAGS. See my recent post Mayo Is Right about Citi for details on our analysis of the company’s loose Deferred Tax accounting and other Red Flags. There are other reasons to run from this stock.

RED FLAGS:

Over $7bn in off-balance sheet debt
$2.2bn in under-funded Pension liabilities
Over $10bn in Asset write-offs
Very Dangerous valuation (detail follow)

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Market Outlook Part 2: The End of the Speculative Movement

Speculators Paradise Is Over

I believe that most of the traders and speculators who have been successful enough to stay afloat will be forced to exit the business or shift to a value investment style – an endeavor in which I expect very, very few to be successful. And though there will be fewer speculators, enough will remain to keep the markets from being too efficient.

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