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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
  • How We Protected Clients From Blowups In 2013 0 comments
    Jan 24, 2014 2:44 PM | about stocks: VTR, LNDC, SHLD, INWK, TNGO, ANGI

    No one wants to lose money. One bad call can cause a portfolio to underperform, especially in a year like 2013 when the market ran riot.

    Unfortunately, identifying stocks that are about to blow up is a difficult task. With corporate filings that run in the hundreds of pages, there's a lot that investors don't know. And in the market, what you don't know can hurt you.

    New Constructs helps you know what you don't know. We performunrivalled diligence on over 3,000 companies, and we make it accessible and cost-effective. Our clients know how our diligence paid in 2012 and2011.

    What do I mean by diligence?

    I mean reading and analyzing entire 10-Ks* for over 3000 companies over their entire reporting history. 10-Ks contain the most important financial information that companies provide all year. Unlike press releases and 10-Qs, only the 10-Ks contain a complete set of the financial footnotes. And only in these footnotes can one find the full set of data required to assess the true profitability and valuation of stocks.

    All too often we find significant data hidden in the footnotes that reveals the risks companies are trying to hide. We compile this information and make it accessible to investors so they can avoid these risks.

    For instance: On September 9th we warned investors about Angie's List (NASDAQ:ANGI). The online customer review site branded itself as a "consumer-driven organization" but actually derived 70% of its revenue from advertisers. ANGI's negative and declining return on invested capital (ROIC) revealed that the company was only becoming more dangerous. ANGI is down 24% since our article was published while the S&P 500 has gained 11%.

    Here are a few other examples of losses we saw coming and steered investors away from.

    1. InnerWorkings (NASDAQ:INWK): Acquisitions helped keep revenue (and executive bonuses) growing while economic earnings declined. Down 30% since ourSeptember 23 article.

    2. Tangoe (NASDAQ:TNGO): Every analyst that covered the stock had a Buy or Strong Buy rating on it, but we saw through the smoke to its declining profits and hidden liabilities and warned investors to stay away. Down 22% since ourOctober 21 article.

    3. Sears (NASDAQ:SHLD): Massive write-downs and hidden pension, operating lease, and deferred tax liabilities marked SHLD as a Very Dangerous stock. Down 18% since our April 22 article.

    4. Landec Corporation (NASDAQ:LNDC): Our analysis of the company's 10-K revealed unusual non-operating income that boosted pre-tax earnings by $11 million and gave the appearance of growth while ROIC declined. Down 17% since our September 11 article.

    5. Ventas Inc. (NYSE:VTR): Analysts were bullish due to growth in the senior housing market, but we saw the declining ROIC that signaled an eroding competitive advantage and the massive growth expectations built into the valuation. Down 13% since our March 18 article.

    These are just a few examples of how we saved clients money in 2013. Our proprietary technology and patented systems allow us to find these red flags so that clients can avoid blowups or even get aggressive and short the stocks to make even more money.

    We also leverage our top-ranked stock picking in our predictive ratings on over 7,400 ETFs and mutual funds.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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