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Danger Zone: Price to Earnings Ratios

Monday, August 18th, 2014 3508252914_73e09af9d3_z

The vast majority of evidence suggests that P/E ratios are an unreliable way to measure the true value of stocks.

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Do Microsoft Bulls Have A Convincing Case?

Tuesday, August 5th, 2014 14450220780_28247b8642_m

MSFT currently earns our Neutral rating, but if new CEO Satya Nadella can halt the company’s declining return on invested capital (ROIC), the stock’s valuation is cheap enough to make it intriguing.

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10 Wonderful Companies That Are Bad Stocks

Tuesday, June 17th, 2014 2170006920_60e219296d_m

Sometimes, a great company can actually be a risky stock when it gets significantly overvalued.

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Apple’s Declining Advantage is Undeniable

Wednesday, January 22nd, 2014 10051113933_27211bffeb

Apple cannot have pricing power and market share at the same time. No one can for an extended period of time. The problem with AAPL is that it is priced for the company to achieve market share penetration and growth at high prices. The reality is that the quality of Apple products versus competitors is declining. Prices will have to come down just to maintain market share.

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Danger Zone: salesforce.com (CRM)

Monday, December 16th, 2013 8871427980_80b2eb7b7a_m

There are too many competitors out there for CRM to grow revenue and expand margins simultaneously to the extent that the market valuation already implies. Too much downside risk is in this stock.

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Danger Zone 11/19/13: Netflix (NFLX)

Tuesday, November 19th, 2013 120px-Netflix_logo.svg

Netflix (NFLX) is in the Danger Zone this week. The DVD subscription and streaming video service has changed the way people watch movies and TV shows. However, its current valuation is out of touch with reasonable expectations for future cash flows and profitability.

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Danger Zone 9/30/13: Zynga (ZNGA)

Monday, September 30th, 2013 Danger Zone 9/30/13: Zynga (ZNGA)

The stock has been beat up since its much-hyped IPO in 2011, but even after losing 61% of its value the stock is still too expensive. ZNGA is competing in an immature market where the barriers to entry are almost nonexistent and brand loyalty is a foreign concept.

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Apple Stays Rotten

Thursday, September 19th, 2013 AAPL_ROIC

The “value” in Apple is an illusion. Astute investors need to look at Apple through the lens of what is a reasonable ROIC in the future.

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Excess Cash – Invested Capital Adjustment

Wednesday, August 7th, 2013 ExcessCashTable

Most companies hold some cash—or cash equivalents in the form of investments—above this required amount. Companies hold excess cash in order to cushion against economic downturns, prepare for acquisitions, or any number of other reasons. Sometimes, past profits pile up on balance sheets and are a form of excess cash. Excess cash is not needed for the operations of a company. It is removed from our calculation of invested capital.

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Asset Write-Downs – Invested Capital Adjustment

Monday, July 22nd, 2013 AWDF1

For debt investors, which GAAP was primarily designed for, write-downs are analytically helpful. They provide a more accurate assessment of the liquidation value of a company’s assets. For equity investors, on the other hand, write-downs are not helpful because they distort the return on invested capital (ROIC) of a company.

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Rating Breakdown: Best & Worst ETFs & Mutual Funds by Style

Tuesday, July 16th, 2013 SB4

This report identifies the “best” ETFs and mutual funds based on the quality of their holdings and their costs. As detailed in “Low-Cost Funds Dupe Investors”, there are few funds that have both good holdings and low costs. While there are lots of cheap funds, there are very few with high-quality holdings.

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Employee Stock Option Costs and Goodwill Amortization – NOPAT Adjustment

Friday, June 28th, 2013 ESO_Goodwill

Converting GAAP data into economic earnings should be part of every investor’s diligence process. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary responsibilities.

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How To Find the Best Style ETFs

Friday, May 24th, 2013 BSTET1

Finding the best ETFs is an increasingly difficult task in a world with so many to choose from.

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The Truth Behind AAPL’s Numbers

Thursday, May 23rd, 2013 AEEG2

This article provides some empirical evidence behind my putting Apple (AAPL) in the Danger Zone last week because its return on invested capital (ROIC) is outrageously high. That fact underscores why valuing this company or any other with the expectation that such a high ROIC was sustainable would be a mistake.

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Danger Zone 5/13/2013: Apple Inc. (AAPL)

Tuesday, May 14th, 2013 appleSlice

Too many investors are looking at AAPL through the rear view mirror and assume that its sky-high profits and return on invested capital (ROIC) are sustainable. As I detail in my CNBC interview, Apple is not cheap and investors should not underestimate the impact of losing Steve Jobs.

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Rating Breakdown: Best & Worst ETFs & Mutual Funds by Sector

Friday, April 12th, 2013 Screen shot 2013-04-12 at 5.08.05 PM

This report focuses on my top picks and pans for all sector funds. I will follow this summary with a detailed report on each sector.

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How To Avoid the Worst Style ETFs

Tuesday, March 26th, 2013 HowWorstStyleETFsFig1

Picking from the multitude of style ETFs is a daunting task. We are here to make it simpler and smarter.

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Best & Worst ETFs and Mutual Funds: Large-cap Blend Style

Thursday, February 7th, 2013 LCBG2

The large-cap blend style ranks first out of the twelve fund styles as detailed in my Style Rankings for ETFs and Mutual Funds report. It gets my Neutral rating, which is based on aggregation of ratings of 33 ETFs and 944 mutual funds in the large-cap blend style as of February 1st, 2013.

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Our Partner, Benzinga, Is Premier Financial News Provider on Windows 8

Friday, October 26th, 2012 Our Partner, Benzinga, Is Premier Financial News Provider on Windows 8

Our long-time partner, Benzinga.com, was selected by Microsoft (MSFT) to be one of the PREMIER financial news providers on Windows 8.

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Best & Worst ETFs and Mutual Funds: All-cap Growth Style

Thursday, October 18th, 2012 AllCapGrowthFig1

The all-cap growth style ranks fifth out of the twelve fund styles as detailed in my style rankings for ETFs and mutual funds. It gets my Neutral rating, which is based on aggregation of ratings of two ETFs and 490 mutual funds in the all-cap growth style as of October 17, 2012.

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