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David Trainer
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Follow me on Twitter: @NewConstructs David is CEO of New Constructs (, an independent research firm that leverages proprietary technology to find key insights from the Financial Footnotes of 10Ks and 10Qs. Having analyzed over 70,000 annual reports and their Financial... More
My company:
New Constructs
My blog:
The Diligence Institute
My book:
The Valuation Handbook
  • The Dangers Of Non-GAAP EPS

    Why are non-GAAP EPS dangerous?

    Because they lead investors even further astray from true profits and GAAP EPS.

    While Pulitzer Prize winner and New York Times author Gretchen Morgenson, hedge fund manager Doug Kass, and activist investor Bill Ackman all have differing views about non-GAAP earnings, one thing is clear; non-GAAP earnings mislead investors from the true cash flows generated by a business.

    Many of our recent Danger Zone stocks use non-GAAP earnings to appear more profitable or less unprofitable in an attempt to keep their stock valuations high.

    Non-GAAP Earnings Create Confusion

    (click to enlarge)

    Sources: New Constructs, LLC

    Most of the time "non GAAP earnings" means companies create the illusion of profitability when cash flows are heading the opposite direction by removing a litany of different expenses that, as management would put it, "do not truly represent the operations of the business." In other words, expenses that would make it hard for us to earn our bonuses.

    What expenses are companies removing from non-GAAP EPS?

    The biggest offenders remove large amounts of stock based compensation. In fact, Twitter removed over $631 million in stock based compensation expenses, which represented 45% of revenue in 2014. In addition to stock based compensation, companies remove acquisition related costs or non-cash interest expenses, among many others.

    To learn the dangers of non-GAAP earnings and how to overcome them, join CEO David Trainer, a Wall Street veteran, in this week's free webinar "The Dangers of Non-GAAP Earnings."

    David will discuss what goes into non-GAAP earnings, why they create a problem in investing and analysis, and where you should focus when analyzing companies who report non-GAAP results. The webinar will be held live on November 12th at 4pm EST.

    Click here to register for the free webinar "The Dangers of Non-GAAP Earnings."

    Nov 12 12:18 PM | Link | Comment!
  • 4Q15 Sector Ratings Recap

    At the beginning of each quarter, we rank each sector from best to worst with our Sector Ratings Report. These rankings are forward looking and are indicative of how each sector should perform going forward.

    We also highlight the top ETFs or mutual funds, along with the worst, or ones to avoid. We even highlight a quality stock and a dangerous stock within the sector as well. This analysis is available to our platinum and higher members. This information allows you to make better decisions when allocating your portfolio, what stocks to look at, which funds to avoid, or which funds to buy. Some of the best funds include FSTA, VDC, XLK, and FDCPX. Some of the worst include RYINX, PXI, FTUTX, and KBWY.

    Last quarter's Sector Ratings can be found here. Last quarter's Sector Recap is available here.

    The following is our analysis of each sector for the fourth quarter of 2015.

    Nov 05 10:23 AM | Link | Comment!
  • How To Avoid Dividend Traps

    Dividends offer great benefits such as income generation and a greater return on your investment when the stock price appreciates during your holding period.

    Some of our recent Long Ideas provide investors an excellent dividend yield and, most importantly, these companies have the cash flows needed to sustain the dividend.

    Quality Stocks With Quality Dividends

    (click to enlarge)

    Sources: New Constructs, LLC

    Unfortunately, the correlation between dividends and cash flows does not always hold true. What happens when a high dividend-yielding stock, which seems attractive to dividend-seeking investors, is not supported by a business with the cash flows needed to pay the dividend?

    Identifying these troubled companies, and avoiding them regardless of how high their dividend is at the moment, is key to building a strong portfolio.

    Don't get burned buying a stock without business operations that can support the dividend. Chasing yield could leave you holding the bag once dividends get cut and share prices fall. Find out how to avoid these traps in this week's webinar "How To Avoid Dividend Traps."

    CEO David Trainer, a Wall Street veteran, will discuss why investors must be wary of high dividend yielding stocks. He'll go over how dividends are not always correlated to cash flows, how unprofitable companies can continue paying dividends, and discuss some of the findings in our recent special report "4 Dividend Traps to Avoid." The webinar will be held live on October 29th at 4pm EST.

    Click here to register for the free webinar "How To Avoid Dividend Traps."

    Oct 28 4:51 PM | Link | 1 Comment
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