researching stocks… …the other 20% by lynn ostrem, vp crow river investment club

RESEARCHING STOCKS…

RESEARCHING STOCKS…

…THE OTHER 20%

By Lynn Ostrem, VPCrow River Investment Club

www.bivio.com/crowriver

First Things First:First Things First:

Find an interesting stock; Complete a preliminary SSG; Do a cursory review; Order an Investor’s Packet; Roll up your sleeves!

Completing a Preliminary SSG

Completing a Preliminary SSG

What do we mean by quality?

Looking for Quality in the SSG:Looking for Quality in the SSG:

Straight, upward graph lines; Double-digit historical sales & earnings; Most recent 4 quarters growing at or

better than the 10-year average; Reasonable debt (NAIC says < 33%); Reasonable insider ownership; and Steady or climbing Pre-Tax Profit (2A).

The Cursory ReviewThe Cursory Review

Online Sources for a Quick Review:Online Sources for a Quick Review:

Multex Investor

www.multexinvestor.com

Quicken

www.quicken.com

Wall Street Research Net

www.wsrn.com

MSN Money Central

http://moneycentral.msn.

com

A Cursory Review using

Multex Investor

A Cursory Review using

Multex Investor

www.multexinvestor.com

Enter the ticker or company name and click GO!

Tour the items on the left column

News & Significant Developments:News & Significant Developments:

Check the News! Is it good?Is it bad?New products announcements?Recognition for outstanding service?!

Check Significant Developments!How about product recalls?SEC investigations?Shareholder class action lawsuits?Executives leaving suddenly?

If so, STOP right there!

News & Significant Developments:News & Significant Developments:

Bad news from Worldcom—weeks before the other shoe dropped. Save time – Check the news first!

Company Overview & Business Description: Company Overview & Business Description:

Quick Access to:

Company description & profile Corporate website Financials Press releases Investor relations Contact information Products & services

Officers & Directors:Officers & Directors:

These are the people who run our companies!

Who are they? What is their background? How much are they paid? How much stock do they own?

Highlights Report:Highlights Report:

The best is at the bottom!

Earnings Estimates:Earnings Estimates:

The first box will give us the analysts’Long-Term Growth Rates.

Do they meet our goals??

Compare your company to its industry, its sector, and the S&P!

Ratio Comparison:Ratio Comparison:

Advanced Strategies…Advanced Strategies…

For the Cursory Review

Insider Trading (Advanced):Insider Trading (Advanced):

Officers receive options in lieu of compensation.

Oftentimes, they sell those options.

This is not a problem.

You are looking for lots of peoplebuying or selling for no apparentreason!

Insider Trading (Advanced):Insider Trading (Advanced):

Simply match the optionswith the Sales.

Analyze what’s left.

Postive Cash Flow (Advanced):Postive Cash Flow (Advanced):

The first sub-total is Cash from Operations.Is it positive?? If Net Income is positive, Cash should be, too!

Accts. Receivable & Inventory (Advanced):Accts. Receivable & Inventory (Advanced):

Neither should be growing faster than sales.

If Accts. Receivable is growing faster…the company isn’t collecting its bills on a timely basis anymore!

If Inventory is growing faster…its products or services aren’t selling as well.

Both are Red Flags!

Accts. Receivable & Inventory (Advanced):Accts. Receivable & Inventory (Advanced):

Sales are on the Income Statement

Accounts Receivable is on the Balance Sheet Inventory is on the Balance Sheet

Sales, Accts. Receivable & Inventory:Sales, Accts. Receivable & Inventory:

From Home Depot’s financial statements on Multex:

$16,277 - $14,282 div. $14,282 = 14%

Receivables $1,235 - $1,082 div. by $1,082 = 14%Inventory $7,196 - $7,417 div by $7,417 = (3%)

If you like what you see…If you like what you see…

…Order that Investor’s Packet early!

Ordering the Packet Online:Ordering the Packet Online:

Most requestsare handled under the “Contact Us” link found on the Investor Relationspage.


After you fill in your name and address, most companies will offer the following information:


If they don’t have an order form online, email the Investor Relations and ask for the following:

……………………………… Annual Report Proxy Statement 10K (SEC Annual Report) Latest 10Q (SEC Quarterly Report) Analyst Reports Press Releases Magazine Articles

Ordering the Packet Offline:

Ordering the Packet Offline:

No Computer Access? Use Value Line.

The Company’s phone number is located at the end of the Business Section.

Just ask for the same information in the previous screen.

When to Expect the Packet:When to Expect the Packet:

This is the company’s 1st test! Keep track of when it arrives:

3-7 days is excellent 1-2 weeks is good (and typical) Over 2 weeks is a BAD omen!

Their response time is a reflection of their feelings about shareholder value.

Performing an In-Depth Study…

Performing an In-Depth Study…

…The Tools

Using the Right Tools:Using the Right Tools:

Company Website Annual Report 10K (SEC Annual Filing) 10Q (SEC Quarterly Filing) Proxy Statement Analyst Reports News & Articles Conference Calls

Performing an In-depth Study…

Performing an In-depth Study…

…What do we Look for?

Company Review:Company Review:

Business Model History Products & Services Customer Demographics Research & Development Quality of Management


Business Model– Who are they?– Exactly how do they make money?– Do they dominate in certain markets?– Do they plan to?– Do they have international presence?– What percentage? Is it growing?

Example: Who are they?Example: Who are they?

Example: What is their market share?Example: What is their market share?

Stats from PepsiCo’s 2000 Annual Report:

Example: What is their market share?Example: What is their market share?

Stats from PepsiCo’s 2001 Annual Report:

Is their History relevant:Is their History relevant:

From Intel’s 2001 Annual Report – a wonderful story about past industrial revolutions and how today’s technology compares!

This is a must-read!

Find it on their website.


Products & Services– Can you describe their products and/or services?– Is there a wide range of products? Or small handful?– Are products highly visible to the public?– Or do they produce a high ratio of repeat business?

Customer Demographics– Do they have a large customer base? – Or do a select few account for the majority of sales?– Are their products serving a diverse client base?

Example: Products & ServicesExample: Products & Services

From International Speedway’s 2001 10K:

Is this diversified??

Example: Customer BaseExample: Customer Base

From Lincare’s 2001 10K:


Research & Development– Are there promising new products in development?– Are new products garnering market share?– What are they spending on R&D (7%-9% is good)?

Quality of Management– Who’s managing the company?– What do we know about them?– Are they accomplishing their goals?– Are they over paid for what they accomplish?

Example: Research & DevelopmentExample: Research & Development

From Pfizer’s 2001 Annual Report:– Compare sales to R&D Expenses

Example: Research & DevelopmentExample: Research & Development

From Pfizer’s 2001 Annual Report:– Financial Review - Outlook

Example: Quality of ManagementExample: Quality of Management

From Mobile Mini’s 2001 Proxy Stmt.– (Schedule 14A in the SEC Documents)

Watch for family members & those performing outside services. Here we have both!

Example: Quality of ManagementExample: Quality of Management

Check the Numbers – Sales, profit margins and control of debt.

Read Letters to the Shareholders for several consecutive years –

did they meet their goals?

Business Outlook – Industry:Business Outlook – Industry:

Uniqueness of the industry Level of competition Positive aspects affecting industry Negative aspects affecting industry Future outlook for the industry Future growth rate of the industry

Finding Industry Information:Finding Industry Information:

Annual Reports– See Glossy pages & Management’s

Discussion SEC 10K Report

– All companies must provide an overview of their industry

Company Websites– Most companies’ websites will provide

information on the industry, as well as links to other websites


Search Engines – such as dogpile.com, about.com, yahoo.com or google.com


Don’t forget Value Line’s Industry Page!

They cover several statistics for competing companies in the Value Line universe.

Business Outlook – The Company:Business Outlook – The Company:

Positive influences on the company Negative influences on the company Primary drivers of future growth

………………………..

SEC 10K Letter to the Shareholder Press Releases

…are the best!

Example: Influences & DriversExample: Influences & Drivers

From Mobile Mini’s 2001 10K

Financial Analysis:Financial Analysis:

Most Important: Keep it simple!

Sales, Pre-Tax Profit & EPS – SSG!– Hint: Use the Pert Report

Balance Sheet Items:– Debt, Accts. Receivable & Inventory

Compare to Competitors:Compare to Competitors:

Find Top Competitors: Value Line, Multex, Quicken, Hoovers, etc.

Use financial websites such as Quicken or Multex Investor to compare to competitors, industry and the S&P 500. And don’t forget the Value Line Industry page.

Again, limit your comparisons to items found on the SSG + balance sheet items

Example: Comparison on QuickenExample: Comparison on Quicken

From Quicken’s Stock Evaluator:

Finding Growth Projections

Finding Growth Projections

Finding Growth Projections:Finding Growth Projections:

From the worst to the best source:

News commentators – CNN, CNBC, etc. Analyst Reports – Value Line, S&P, etc. Financial Websites – Zacks, Multex, etc. Annual Reports Company’s Press Releases Conference Calls Investor Relations

Example: Analyst ReportsExample: Analyst Reports

Value Line offers sales and EPS estimates out 3-5 years

Example: Financial WebsitesExample: Financial Websites

From Quicken’s Analyst Ratings Tab

Example: Annual ReportExample: Annual Report

From Pfizer’s 2001 Annual Report

Example: Company’s Press ReleaseExample: Company’s Press Release

From a Press Release on Brinker’s website

Example: Company’s Press ReleaseExample: Company’s Press Release

From a Press Release on Yahoo! Finance:

18% - 19% revenue growth19% - 20% earnings growth3% to 5% same-store growth

Example: Conference CallsExample: Conference Calls

Conference Calls – On company Website – or www.vcall.com

Example: Contact Investor RelationsExample: Contact Investor Relations

From Brinker’s Company Website:

Tying it all Together:Tying it all Together:

1. First, have a plan before you begin;2. Use a highlighter when reading;3. Copy information into a Word file;4. Condense it into something simple;5. Make sure your last paragraph contains an

explanation of your SSG judgments; 6. Save your original in a 3-ring binder.

Finalizing for a Club Report:Finalizing for a Club Report:

Presenting your Report to the Club??

– Make report no more than 3 pages;– Plus the Value Line company page;– Plus the Value Line industry page;– Plus, include really good articles; – Plus a completed SSG; and– Plus a Stock Comparison Guide.

Questions??Questions??

Thank you!

Lynn [email protected]

Finding Lynn’s Presentation

and Research Guidelines:

Finding Lynn’s Presentation

and Research Guidelines:

Crow River Investment Club Website:

www.bivio.com/crowriver

Click on Catch-All Corner:

Look for “Researching Stocks–The Other 20%”

and “Research Guidelines”