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David Trainer
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David is CEO of New Constructs (www.newconstructs.com), an independent research that specializes in unearthing key insights from the Financial Footnotes of Annual Reports. Having analyzed over 50,000 annual reports and their Financial Footnotes, New Constructs research regularly produces Hidden... More
My company:
New Constructs
My blog:
Hidden Gems and Red Flags
My book:
The Valuation Handbook
  • REITs and Financial Stocks Are “Most Dangerous” for December 0 comments
    Dec 6, 2010 4:13 PM | about stocks: DFS, ESS, EQY, EWBC, RSO

    The Decem­ber ver­sion of our Dan­ger­ous Stocks report is now avail­able. Note that Barron’s recently rec­og­nized our Most Attrac­tive Stocks port­fo­lio as #1 over the prior 12 months amongst the best of the Wall Street research firms.

    Lots of REITs and finan­cial stocks make this month’s list. Dis­cov­ery Finan­cial Ser­vices (DFS) and Essex Prop­erty Trust (ESS) make the cut for the large cap Most Dan­ger­ous this month. We also rec­om­mend sell­ing Equity One (EQY), East West Ban­corp (EWBC) and Resource Cap­i­tal Corp (RSO) on the small cap list. All of these stocks have mis­lead­ing earn­ings, which means their reports earn­ings are pos­i­tive and ris­ing while their eco­nomic earn­ings are neg­a­tive and declin­ing. In addi­tion, the val­u­a­tions for these stocks are very high. For exam­ple, the cur­rent stock prices of DFS and ESS imply those com­pa­nies prof­its will grow by 300% or more. The cur­rent stock prices of EQY, EWBC and RSO imply those com­pa­nies prof­its will grow by as much as 1000% or more. The high expec­ta­tions in the prices of these stocks expose investors to lots of down­side risk and lit­tle upside potential.

    Note that we offer free com­pany val­u­a­tion reports for 4 of the com­pa­nies included in our Most Attrac­tive and Most Dan­ger­ous Stocks newsletters.

    Here is a quick overview for the Decem­ber reports.

    • 4 new stocks make our December lists.
    • The Dan­ger­ous Stocks (+3.6%) rose while the S&P 500 fell (-1.5%) and under­per­formed as a short port­fo­lio last month.
    • Most Dan­ger­ous Stocks have mis­lead­ing earn­ings, which means reported earn­ings are ris­ing while true eco­nomic earn­ings are declining.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: DFS, ESS, EQY, EWBC, RSO
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