Researching Companies
Research for Online Investors

by John Dalt

2/4/10

How do you research companies to decide to invest in them?  This question was posed by subscriber R.G. a couple of weeks ago in our mailbag.  New investors face a monumental task, separating the wheat from the chaff.  Buying as an investment as opposed to trading on technicals requires fundamental analysis.

The first place I go is Yahoo finance; they put a lot of information at your finger tips. From here, you can decide whether to go deeper. Look at buying stock as if you were buying a minority interest in a company down the street. You would want to know everything about it, including the management. I go to the profile page to read a summary of the business, then the statistics page. How much debt do they have, what are their profit margins, do they pay a dividend.

Look at the income, balance and cash flow financial pages. Are sales increasing? Are they paying debt down? Look at the yearly statements for changes; compare every column with last years. Then go to the quarterly reports, do the same thing. Make any notes of something you don’t understand. I like to go to the headlines and read the news stories for the last month or two.

After doing this on Yahoo, go to the company’s website. Their investor relations department should have some information available to you, but look for more. I like to use the website to gain a ‘feel’ for the company. I like to listen to the recording for the last quarterly financial results conference call. If you can’t source the recording, you should find a transcript, if not on the company website then go back to headlines on yahoo and search back in time until you find it.

If I am still interested, I like to go back to Yahoo and under ‘SEC Filings” read the summary for all the filings in the last year.  By now you know more about the subject company than most of the other market participants.  This should take a few hours, don’t get in a hurry.  Would you buy a company down the street based on a hunch?  If you have any questions, call Investor Relations.  They can answer some questions and will give you a feel for how they view their investors.  Don’t ask them to explain the balance sheet, they can’t.

After you have become familiar with the stock, go back to the financials on Yahoo and analyze what the company is worth. Is it over-valued or under-valued? This is subjective, so give yourself some room for error, a safety factor. After you are done with the fundamental analysis, look at the stock trading history for the last year and do some technical analysis.  If you have decided to buy the stock, here is where you arrive at a target price.  This can enhance your gains in the market, buying the stock at an advantageous price.  You don't have to own it today, or tomorrow.  Take your time to buy at YOUR price.

I view companies as either dividend payers or growth.  I would encourage you to read our article in Investor Resources titled “Dividend Stocks, Pick the Best.”  This will help you appreciate the importance of a dividend.  I hope this helps you find companies you want to own!  I should mention here, you can hire me to do all of the above, and more for one year.  All for less than the cost of one day’s wages.  Quite a deal, when you get right down to it, why not join Galt’s Long-Term Portfolio?

Portugal tried to borrow Euro 500 million last night, bidders offered to cover Euro 300 million.  Opps, failed auction.  How long until hit happens to us?  Portugal, Italy, Ireland, Greece and Spain (PIIGS) all have serious budget problems, and have to curtail spending, else they risk sovereign debt problems.  What happens when buyers of sovereign debt balk at buying the bonds?  Interest rates must rise to entice the buyer to take the risk.  The cost of a Credit Default Swap (CDS) on the PIIGS is rising.

Portugal’s budget deficit is above 9% of GDP, Greece’s above 13%, the U.S. 10.6%. You gotta love the company we keep! The European Union allows member countries to run a deficit of up to 3% of GDP and remain in good standing to access the capital markets.

The U.S. House of Representatives voted to increase the national debt ceiling by $1.9 trillion, raising it to $14.3 trillion dollars. Now every one percent increase in interest rates cost $143 billion, per year. How high will they go?

From the mailbag:
On government spending, “They need to call Charlie.  Charlie says that when you're in a hole, maybe you ought to stop digging.”---subscriber J.S.

Johns reply: Charlie knows!

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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