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Highlights From New Constructs Investment Research

Apple’s Declining Advantage is Undeniable

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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)

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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)

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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)

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

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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

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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

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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

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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

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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

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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

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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)

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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

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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

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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

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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

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

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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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Fox TV Interview: How To Make Money In This Market

Fox TV Interview: How To Make Money In This Market

Yesterday, on Fox Business’s After The Bell, I shared my market outlook and strategy for making money in the current market. Here is the interview.

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Best & Worst Style ETFs & Mutual Funds

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The best ETFs and mutual funds have high-quality holdings and low costs. As detailed in “A cheap fund is not always a good fund”, 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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Roadmap to the Best & Worst ETF and Mutual Fund Styles

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None of the fund styles earn a rating better than Neutral. The primary driver behind the Neutral-or-worse ratings is poor… Read more >>

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