Acknowledgments . . . xiii
About the Author . . . xxii
Introduction . . . xxiii
PART I GETTING STARTED . . . 1
Chapter 1 The Analysis Process . . . 3
Identifying Potential Candidates . . . 3
Concentrate on the Strongest Candidates . . . 4
Quick Prequalify . . . 4
Detailed Analysis . . . 6
When to Sell . . . 10
Summary . . . 10
Chapter 2 Evaluating Risk . . . 11
Portfolio Risk . . . 11
Risk Factors . . . 12
Spotting Strong Industries in a Weak Market . . . 16
Company-Specific Risks . . . 17
Company-Specific Risks Described in Subsequent Chapters . . . 20
Summary . . . 23
Chapter 3 Screening . . . 25
Morningstar . . . 26
Google . . . 26
Zacks . . . 27
Portfolio123 . . . 27
Google Growth Screen . . . 28
Zacks Growth/Momentum Screen . . . 31
Portfolio123 Down & Out Value Stock Finder . . . 34
Portfolio123 Growth Stock Screen . . . 38
Zacks' Bulletproof Stocks . . . 41
The Zen of Screening . . . 44
Premade Screens . . . 44
Summary . . . 45
PART II ANALYSIS TOOLS . . . 47
Chapter 4 Analysis Tool #1: Analyze Analysts' Data . . . 49
Who Are the Analysts? . . . 50
Analysts' Ratings . . . 51
Sell Is a Four-Letter Word . . . 51
Consensus Ratings . . . 53
Do Strong Buys Outperform Sells? . . . 54
Number of Analysts . . . 58
Sentiment Index . . . 59
Analysts' Estimates . . . 61
Earnings Surprise . . . 66
Sales Forecasts . . . 67
Guidance Changes . . . 69
Research Reports . . . 69
Summary . . . 70
Chapter 5 Analysis Tool #2: Valuation . . . 71
Implied Growth . . . 72
Growth at a Reasonable Price . . . 76
Dividends . . . 80
Summary . . . 80
Chapter 6 Analysis Tool #3: Establish Target Prices . . . 81
The Process . . . 82
Summary . . . 90
Chapter 7 Analysis Tool #4: Industry Analysis . . . 91
The Business . . . 91
Industry Growth Outlook . . . 92
Analysts' Forecasts Are Good Enough . . . 93
Convert Earnings Growth to Sales Growth . . . 93
Industry Concentration . . . 96
Picking Winners in an Emerging Fragmented Industry . . . 97
Industry Scuttlebutt . . . 101
Summary . . . 102
Chapter 8 Analysis Tool #5: Business Plan Analysis . . . 103
Introduction . . . 104
Overblown Competitive Advantages: Factors That Should Make a Difference But Often Don't . . . 113
Business Plan Scorecard . . . 115
Summary . . . 115
Chapter 9 Analysis Tool #6: Evaluate Management Quality . . . 117
Key Executive and Board Quality . . . 117
Clean Accounting . . . 118
Earnings Growth Stability . . . 120
Stock Ownership . . . 122
Summary . . . 122
Chapter 10 Analysis Tool #7: Analyze Financial Fitness . . . 123
Financial Fitness Counts . . . 123
Pinpointing Financially Challenged Companies . . . 124
Simplify the Problem . . . 125
Detecting Potential Busted Cash Burners . . . 27
Detailed Fiscal Fitness Exam . . . 136
Bond Ratings . . . 150
Use Bond Prices to Identify Risky Debtors . . . 152
Summary . . . 153
Chapter 11 Analysis Tool #8: Profitability and Growth Analysis . . . 155
Where Do Earnings Come From? . . . 155
Analyzing Sales (Revenue) History . . . 161
Analyzing Margins . . . 166
Comparing Margins . . . 167
High Versus Low Margins . . . 172
Analyzing Overhead Expenses . . . 174
Profitability Ratios . . . 175
Cash Flow Analysis . . . 182
EBITDA Versus Operating Cash Flow . . . 189
Summary . . . 190
Chapter 12 Analysis Tool #9: Detect Red Flags . . . 191
Sales Growth Trends . . . 193
Accounts Receivables and Inventories . . . 197
Statement of Cash Flows . . . 204
Yellow Flags . . . 209
Summary . . . 212
Chapter 13 Analysis Tool #10: Ownership Considerations . . . 215
Institutional Ownership . . . 215
Insider Ownership . . . 218
Summary . . . 221
Chapter 14 Analysis Tool #11: Price Charts . . . 223
Trends . . . 223
Moving Averages . . . 225
Value Investors . . . 225
Growth Investors . . . 226
Avoid Downtrends . . . 227
Compare Short- and Long-Term Moving Averages . . . 227
The Risk Zone . . . 228
Chart Types . . . 229
Trading Volume . . . 230
Summary . . . 230
PART III THE ANALYSIS PROCESS . . . 231
Chapter 15 Quick Prequalify . . . 233
Concentrate on the Strongest Candidates . . . 233
Company Overview . . . 234
Valuation Ratios . . . 238
Real Revenues + Real Earnings + Real Growth = Real Stock . . . 241
Check the Buzz . . . 243
Summary . . . 244
Chapter 16 The Value Investing Process . . . 245
Concentrate on the Strongest Candidates . . . 245
Cycles . . . 247
Normalizing . . . 248
The Value Analysis Process . . . 248
When to Sell . . . 271
Summary . . . 273
Chapter 17 The Growth Investing Process . . . 275
Concentrate on the Strongest Candidates . . . 275
Growth Candidates . . . 278
The Process . . . 278
When to Sell . . . 315
Summary . . . 317
Chapter 18 Analysis Scorecards . . . 319
Value Stock Analysis Scorecard . . . 320
Growth Stock Analysis Scorecard . . . 326
PART IV APPENDIXES . . . 333
Appendix A Industry Information . . . 335
Appendix B Economic Data . . . 341
Appendix C Earnings Reports and Conference Calls . . . 343
Reported Earnings . . . 344
Summary . . . 346
Appendix D Detecting Scams, Frauds, and Pump and Dump . . . 347
Summary . . . 350
Appendix E How to Read Financial Statements . . . 351
Income Statement . . . 352
Balance Sheet . . . 353
Statement of Cash Flows . . . 355
Finding the Data . . . 357
Pro Forma Accounting Versus GAAP . . . 358
Appendix F Glossary . . . 359
Index . . . 367
