Fire Your Stock Analyst

HARRY DOMASH publishes Winning Investing, a monthly stock and mutual fund advisory newsletter. He also teaches stock and mutual-fund analysis classes, is a frequent speaker at the American Association of Individual Investors' meetings, and conducts fundamental analysis workshops. Domash's investing tutorial column appears in the San Francisco Chronicle and the Santa Cruz Sentinel. His fundamental analysis columns have appeared in Business 2.0 magazine. He is the author of The Everything Online Investing Book: How to Use the Internet to Analyze Stocks & Mutual Funds. He runs the www.winninginvesting.com site for personal investors.

Introduction.


Acknowledgments.
I. GETTING STARTED.

The Analysis Process.


Finding Candidates. Analyzing Stocks. Quick Prequalify. Detailed Analysis. When to Sell. Summary.

Evaluating Risk.


Market Valuation. Market Direction. Spotting Strong Industries in a Weak Market. Company-Specific Risks. Company-Specific Risks Described in Subsequent Chapters. Summary.

Screening.


Quicken Growth Screen. Quicken Value Screen. “MSN Money” Down & Out Value Stock Finder. Multex Investor Bulletproof Stocks. The Zen of Screening. Premade Screens. Summary.

II. ANALYSIS TOOLS.

Analysis Tool #1: Analyzing Analysts' Data.


Who Are the Analysts? Analysts' Ratings. “Sell” Is a Four-Letter Word. Consensus Ratings. Do Strong Buys Outperform Sells? Number of Analysts. Sentiment Index. Analysts' Estimates. Forecast EPS Trend. Earnings Surprise. Sales Forecasts. Regulation FD. Research Reports. Summary.

Analysis Tool #2: Valuation.


Implied Growth. Growth at a Reasonable Price. Dividends. Summary.

Analysis Tool #3: Establishing Target Prices.


The Process. Cisco Systems. Summary. The Business.

Analysis Tool #4: Industry Analysis.


Industry Growth Outlook. Industry Concentration. Picking Winners in an Emerging Fragmented Industry. Industry Scuttlebutt. Summary.

Analysis Tool #5: Business Plan Analysis.


Introduction. Overblown Competitive Advantages. Business Plan Score Scorecard. Summary. Key Executive and Board Quality.

Analysis Tool # 6: Management Quality.


Clean Accounting. Earnings Growth Stability. Stock Ownership. Summary. Financial Fitness Counts.

Analysis Tool #7: Financial Fitness Evaluator.


Pinpointing Financially Challenged Companies. Simplify the Problem. Low Debt. Detecting Potential Busted Cash Burners. Detailed Fiscal Fitness Exam. Bond Ratings. Use Bond Risk Premiums to Identify Risky Debtors. Summary.

Analysis Tool #8: Profitability Analysis.


Where Do Earnings Come From? Analyzing Sales (Revenue) History. Analyzing Margins. Gross Margin. Operating Margin. Net Profit Margin. Comparing Margins. Gross Margins. Operating Margins. Analyzing Margins. High vs. Low Margins. Analyzing Overhead Expenses. Profitability Ratios. Return on Equity. Return on Capital. Return on Assets. Marginal Return on Assets. Cash Flow Analysis. Working Capital Changes. Cash Tells the Story. Dubious Allocations. Using Operating Cash Flow. Free Cash Flow. Quarterly Cash Flow Reports. EBITDA vs. Operating Cash Flow. Free EBITDA. Summary.

Analysis Tool #9: Detecting Red Flags.


Sales Growth Trends. Accounts Receivables & Inventories. Inventory Analysis. Statement of Cash Flows. Pension Plan Income. Yellow Flags. Summary.

Institutional Ownership.


Institutional Percentage of Shares Outstanding. Step 10: Ownership Considerations. Insider Ownership. Float. Insider Holdings. Summary.

Trends.


Tool # 11: Price Charts. Moving Averages. Avoid Downtrends. The Risk Zone. Chart Types. Trading Volume. Summary.

III. THE ANALYSIS PROCESS.

Quick Prequalify.


Company Overview. Snapshot Report. Valuation Ratios. Highlights Report. Ratio Comparison. Check the Buzz. Summary.

Value Investing: The Process.


Cycles. Normalizing. Value Analysis Process. Step 1: Analysts' Ratings & Forecasts. Step 2: Valuation. Step 3: Target Price Ranges. Step 4: Industry Analysis. Step 5: Business Plan Analysis. Step 6: Management Quality. Step 7: Financial Health. Step 8: Profitability Analysis. Step 9: Red Flags. Step 10: Ownership. Step 11: Charts. When to Sell. Summary.

Growth Investing: The Process.


Growth Candidates. The Process. Step 1: Analysts' Ratings & Forecasts. Step 2: Valuation. Step 3: Target Prices. Step 4: Industry Analysis. Step 5: Business Plan Analysis. Step 6: Management Quality. Step 7: Financial Health. Step 8: Profitability. Step 9: Red Flags. Step 10: Ownership. Step 11: Price Chart. Summary.

When to Sell.


Summary.

IV. MORE TOOLS.

Earnings Reports & Conference Calls.


Reported Earnings. Summary.

Detecting Scams, Frauds, and Pump & Dump.


Opportunity Knocks. Shoestring Operation. Hyping Pays Well. Quick Hype Checks. Summary.

How to Read Financial Statements.


Income Statement. Balance Sheet. Statement of Cash Flows. Finding the Data. Pro Forma Accounting vs. GAAP. Analysis Scorecards. Value Stock Analysis Scorecard. Summary.

Growth Stock Analysis Scorecard.


Summary.

Glossary.
Index.