There has been much discussion of late comparing differences between telecommunication giants AT&T (T) and Verizon Communications (VZ). The pendulum seems to swing back and forth regarding which is the better growth story, who has the safer dividend, best ROE, etc., etc.

As we all know, earnings growth is critical to future dividend growth and sustainability. While there are some very compelling macro arguments (backed by sound earnings-yield and discount cash-flow projections) making a case in support of each company, we would like to offer a different perspective to the discussion. That is, who displays the healthier earnings quality and strongest liquidity?

To determine this, you first have to identify the sources of "cash-flows" used to build the earnings report. The financial statements tell an important story and investors willing to dig a bit deeper will find valuable clues to the potential future price movements of a stock.

We employ

It was Friday the 13th and another black cat crossed Diamond Foods' (DMND) path. For a company who sells nuts and popcorn, the combination of an SEC inquiry and a DoJ investigation takes the fun out of owning small-cap food companies. Both agencies are investigating DMND on accounting treatment of payments to walnut growers.

Last week, KeyBanc threw in the towel and downgraded DMND to hold after beating the table with a "buy" several months ago.

KeyBanc analyst Akshay Jagdale who issued the downgrade report was also one of several other analysts who had been gung-ho on Green Mountain Coffee (GMCR) prior to that stock's implosion following their Q4 earnings.

It should be noted that KeyBanc was affiliated with underwriters of GMCR's latest secondary.

Ironically, KeyBanc had hired accounting consultant Robert Willens to help them assess the bookkeeping at DMND. In early December, Willens gave DMND a clean bill of

Investors willing to embrace risk in the pursuit of high yield may want to consider sprinkling some junk bonds into their income portfolios. Although closed-end funds (CEFs) offer the average investor broader diversification to baskets of non-investment-grade corporate debt (often at a discount to NAV), we offer some individual ideas to consider:

Harrahs Operating Co.: These bonds were trading at 76 cents on the dollar last March. They are now 48 cents, with a gushy yield of 27.5%.

Casino operators are highly leveraged, and Harrahs (now Caesar’s Entertainment) carries more debt than most, thanks to a poorly timed and expensive LBO in 2008. Naysayers were convinced the company would be forced to file bankruptcy, but the company’s survival thus far is the result of shrewd financial engineering this past two years. In addition, anecdotal evidence of recent

Shareholders of Research in Motion (RIMM) have seen their stock value minced into chutney this past year. We thought the stock looked undervalued in June, but the following two quarterly earnings reports (Q2 &Q3 2012) went from bad to ugly.

Making matters worse is that management seems to be in denial of the fact that the ship is heading straight for the rocks.

We wrote in June that “RIMM needs to focus on their core strengths.” Unfortunately, the only bone being thrown investors is the announcement that the co-CEO’s will each receive a salary of $1. Getting paid $1 for having their heads in the sand seems like two bucks too much in our view.

Now that shares are trading closer to tangible book value, what are the options for this fallen smart-phone maker? From a financial statement perspective, RIMM also has attributes that may be appealing to a potential

The announced acquisition of DemandTec (DMAN) by IBM (IBM) on December 8th, underscores the jockeying of positions within the cloud computing space. Big-fish are buying the small fry such as a recent deal by SAP AG (SAP) purchasing SuccessFactors (SFSF).

Adding fuel to the fire was the December 9th news that Blue Coat Systems (BCSI) agreed to be bought by an investor group led by PE firm Thoma Bravo LLC and including a unit of the Ontario Teachers’ Pension Plan.

Cisco’s (CSCO) recent introduction of CloudVerse is also a new entrant to the cloud scene.

Another name we think highly of in the WAN (wide area network) environment is Riverbed Technology (RVBD). They too could make an excellent acquisition target to a larger player wanting to guarantee their footprint in the cloud arena. Yet, the company also has a bright future as a stand-alone business. What’s to like?

Revenue growth

We use dual cash flow analysis as a primary screen for vetting investment candidates being considered in our portfolios. Although we have tweaked our model over the years to include more complex accounting analysis of the financial statements, the nuts and bolts of our screen focus on the sources of cash flow and their contributions to earnings.

Our research has shown that companies and businesses who generate most of their cash flow from “operations” tend to have higher quality-of-earnings than companies who rely on non-cash balance sheet "maneuvers" to support earnings.

Understanding the components of an earnings report gives us a good picture of a company’s financial health and liquidity. Studying the changes within these relationships over multiple periods (quarterly or annually) allows us to identify potential opportunities and detect possible danger looming ahead. The dual cash flow technique has also shown to be a very effective tool for evaluating

Fixed income investors looking to put some cash to work may find interest in several of the closed-end funds we have been nibbling at of late.

Residents of California might consider either Nuveen Municipal Value Fund (NCA) or BlackRock Calif. Municipal Fund (BFZ). Both offer current income exempt from regular federal income taxes and California personal income tax.

NCA currently trades at a -4.14% discount to net-asset-value, yields 5.05% with a taxable equivalent yield of 7.78%. BFZ trades at a narrow -0.42% discount to NAV, but current yield is 6.72% w/ 9.73% taxable equivalent. BFZ also has an effective leverage rate of 24.4%.

We have also been adding to Inflation-Linked securities primarily in US TIPS via Western/Claymore Infl-Lnkd Sec. (WIA and WIW). Distribution rates run about 3% on each, but discount to NAV is an average -10.5%, wider than we have seen since 2009.

All of the funds listed pay

Green Mountain Coffee (GMCR) filed their annual 10-K report on Nov. 14th, less than one week after announcing Q4 and full-year 2011 earnings. GMCR shares have rallied a bit since the post-earnings report lows, likely the combination of investor “relief” and a healthy dose of short covering.

As for analysts, the usual suspects have been talking up the stock since the Q4 earnings debacle. William Blair analyst Jon Andersen is the latest, upgrading GMCR to “outperform” on Dec. 1. This follows bullish comments from analysts at Janney and Cannacord back in mid November.

It should also be noted that each of the firms mentioned above are affiliated with underwriters participating in GMCR’s most recent secondary.

Our long-time bearish view of the company is tempered a bit by the fact that management has taken steps to address "material weaknesses in internal controls over financial reporting," including the hire of Steve Gibbs

We believe the recent slide in Diamond Foods (DMND) shares offer an interesting value proposition for investors seeking exposure to a prodigious cash-flow generator within the snack-food space.

The fall of DMND shares in recent weeks can be attributed to several events including investigations regarding crop payments and the delay in its pending acquisition of the Pringles brand from Proctor & Gamble (PG).

Deal Risk: This obviously weighed heaviest on the stock as the Pringles deal was announced in April and investors fed into the “game changer” prospects of the potential for the Pringles brand to catapult DMND into the turf of salty snack peers such as Pepsi (PEP).

The irony here is the seller (P&G) was structuring the deal via a complex transaction known as a Reverse Morris Trust. Basically, P&G will be selling unwanted assets (Pringles was a money loser for them) while advantaging from a loophole that

Green Mountain Coffee’s (GMCR) Q4 earnings bombshell Thursday should come as no surprise to anybody paying attention to the financial statements. (FQ4 EPS of $0.47 missed by $0.01. Revenue of $711M (+96% Y/Y) missed by $49.5M.

See the Full GMCR Earnings Call Transcript

We have on many occasions ( 9-20-10, 2-13-11, 5-4-11 to name a few) warned investors to a myriad of concerns regarding GMCR’s financial statements and questionable accounting practices.

The Merriam Report’s unique dual cash-flow and accrual analysis highlighted these issues long before David Einhorn made his bearish presentation in October and months prior to other analysts.

In retrospect, the bear camp was a lonely one. Our favorite observer of all things Green Mountain, Sam Antar of White Collar Fraud, has been warning investors about GMCR’s accounting issues for quite a while.

CNBC’s Herb Greenberg also raised questions about GMCR’s bookkeeping in the past.

Being early isn’t always

With the Federal Reserve meeting this week on monetary policy, all attention will be focused on Wednesday's FOMC's statement and Chairman Bernanke's press conference.

Will the Fed announce an official "QE 3" or possibly surprise the markets with some good news for a change i.e. credit expansion?

In the first half of 2011, equities benefited from Quantitative Easing #1 and #2. The theory being, anytime you print lots of money and flood liquidity into the system, asset prices appear less expensive than they might have been before an injection of "stimulus."

More recently, the Fed and Treasury concocted “Operation Twist” which in our view essentially is “QE3” dressed in drag. “Twist” is a cutesy way of saying the economy is still lousy. Here, the Fed is buying up to $300 billion worth of longer duration Treasury Notes and parking them on their already bloated balance sheet. Its objective is to

In our almost two decades as financial statement “sleuths,” one thing is certain. Ignoring the changes between relationships in the reported numbers can be dangerous and costly.

Clients and investors who follow our work know we have been bearish on Netflix (NFLX) and Green Mountain Coffee (GMCR) for quite a while.

NFLX reported yesterday (10-24-11) and GMCR has not yet announced a date for earnings. Both companies in our view articulate why it is important to pay attention to the clues provided in a company’s financial statements.

Netflix: Beleaguered DVD and streaming video provider NFLX reported a $0.21 earnings beat in Q3, but (not surprisingly) warned that Q4 earnings and margins would be lower than consensus estimates.

NFLX shares were down -27% in after hours trading on top of the almost 60% decline prior to the Q3 report.

Although the company has been signing a flurry of new content deals

The bearish argument against (former) momentum darling Green Mountain Coffee (GMCR) finally caught the attention of investors this past week, thanks to Greenlight Capital’s David Einhorn in his robust 110-slide presentation before the Value Investing Congress in New York. Shares of GMCR are off some 30% since his comments.

Up until mid-September, GMCR stock had been the bane of long-established and significant positions held short. Ironically, Einhorn’s bearish thesis reiterated many concerns previously discussed in the financial media.

The Merriam Report too has highlighted its concerns of questionable accounting practices at GMCR on numerous occasions (May 9, May 4, April 29 and Feb. 13 of this year). We also note some very in-depth investigative research by Sam E. Antar, chief cook and bottle-washer over at White Collar Fraud.

It comes as absolutely no surprise to see investors flee this stock in the wake of Einhorn’s negative outlook for GMCR. We

Seeking Alpha contributor Alan Brochstein recently put out a very interesting piece on Halliburton's (HAL) new "fracking" fluid called CleanStim. The fluid is reportedly made with ingredients used to process food and nutritional products.

If this is the case, then as Mr. Brochstein points out, environmental concerns over safety to water supplies might potentially be mitigated significantly ... not to mention reducing costs of extraction.

The rationale here is simple. If Balchem (BCPC) or any other company is providing choline as an input variable, then margins on BCPC and/or its peers stand to benefit greatly should oil and gas shale development either embrace this voluntarily or via mandate.

In this discussion we will focus on the financial statements of specialty chemical maker Balchem, whom Mr. Brochstein also believes may be a supplier of choline used in HAL's fracturing fluid formulation. Our BCPC analysis will examine the seven quarters through June

Despite strong second quarter 2011 revenues of $13.1 billion, Intel (INTC) reported gross margins of 61.9%, a decline of 5.5 points from the 67.4% realized in last year’s Q2.

We should note that sales were up a smart 22% from last year’s levels, due in large part to demand for Sandy Bridge products. Although the acquisitions of McAfee and the Infineon wireless division are still being digested, we have a very high opinion of Intel and its management team.

That said, we believe there were ample clues in the company’s financial statements which might have provided investors sufficient information to take profits prior to the share price decline leading into Q2 2011 earnings.

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Earnings Quality

The first noticeable change in INTC’s earnings quality can be seen in the precipitous decline in the dual cash-flow ratio as displayed in the Merriam Report model. Notice that after peaking

As for Goldman, longtime NFLX observer and SA contributor Andrew Shapiro offered this comment:

GS is excited about one thing - the prospect of leading the inevitable secondary stock offering to raise the necessary $ to