Although business headlines still tout earnings numbers, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.
Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to check the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.
Calling all cash flows
When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Canadian Pacific Railway (TSX: CP), whose recent revenue and earnings are plotted below.
Top 5 Defense Stocks To Invest In 2015: Mazda Motor Corp (MZDAY.PK)Mazda Motor Corporation is a Japan-based company engaged in the manufacture and distribution of automobiles and automobile parts. The Company provides mini vans, compact vehicles, sports cars, sport-utility vehicles, station wagons, sedans, light cars, commercial vehicles, welfare vehicles and special edition automobiles, as well as automobile accessories, including car navigation systems, automobile audio systems, side monitors, rear seat monitors, electronic toll collection (ETC) in-vehicle equipment, security products, driving support products, bulbs, pet carriers and child seats, among others. As of March 31, 2013, the Company had 56 consolidated subsidiaries and 15 associated companies. Advisors' Opinion:
- [By Elliott Gue]
This so-called One Ford initiative involved the US$2.3 billion sale of Jaguar and Land Rover to Tata Motors (TTM) and the US$1.6 billion divestment of Volvo to Geely Automobile Holdings (GELYF.PK). After selling the majority of its stake in Mazda Motor Corp (MZDAY.PK) and discontinuing Mercury, Ford Motor Company's portfolio consists of its eponymous mass-market brand and the higher-end Lincoln.
Best Sliver Stocks To Own For 2014: Simplicity Bancorp Inc (SMPL)
Simplicity Bancorp Inc., formerly K-Fed Bancorp, is a federally-chartered stock holding company. K-Fed Bancorp is a wholly owned subsidiary of K-Fed Mutual Holding Company (the MHC), a federally-chartered mutual holding company. K-Fed Bancorp operates through its subsidiary, Kaiser Federal Bank (the Bank), a federally chartered stock savings bank, which provides retail and commercial banking services to individuals and business customers from its nine branch and financial service center locations throughout California. The Bank is a community-oriented financial institution offering a variety of financial services. The Bank�� principal business activity consists of attracting retail deposits from the general public and originating primarily loans secured by first mortgages on owner-occupied one-to-four family residences and multi-family residences located in its market area and, to a lesser extent, automobile and other consumer loans. Its revenues are derived principally from interest on loans and mortgage-backed and related securities. It also generates revenue from service charges and other income. The Bank offers a variety of deposit accounts having a range of interest rates and terms, which generally include savings accounts, money market accounts, demand deposit accounts and certificate of deposit accounts with varied terms ranging from 90 days to 5 years.
The Bank originates consumer loans, primarily automobile loans. As of June 30, 2010, its net loan portfolio totaled $758 million, which constituted 87.4% of its total assets. As of June 30, 2010, the Bank�� first lien one-to-four family residential mortgage loans totaled $335.6 million, or 43.5%, of its gross loan portfolio. It originates one-to-four family mortgage loans on a fixed rate and adjustable rate basis. As of June 30, 2010, the Bank�� one-to-four family adjustable rate mortgage loan portfolio totaled $58.6 million, or 7.6% of its gross loan portfolio. As of June 30, 2010, the fixed r! ate one-to-four family mortgage loan portfolio totaled $276.9 million, or 35.9% of its gross loan portfolio. Included in non-accrual loans at June 30, 2010, were $2.9 million in adjustable rate one-to-four family mortgage loans and $21.9 million in fixed rate one-to-four family mortgage loans.
The Bank also offers multi-family residential real estate loans. These loans are secured by real estate located in its primary market areas, within the state of California. As of June 30, 2010, multi-family residential loans totaled $278.4 million, or 36.1%, of its gross loan portfolio, and consists of 415 loans outstanding with an average loan balance of approximately $670,000. It offers a variety of secured consumer loans, including home equity lines of credit, new and used automobile loans, and loans secured by savings deposits. It also offers a limited amount of unsecured loans. At June 30, 2010, the Bank�� consumer loan portfolio, exclusive of automobile loans, totaled $13.8 million, or 1.8%, of its gross loan portfolio.
The Bank is authorized to invest in various types of liquid assets, including the United States Treasury obligations, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers��acceptances, repurchase agreements and federal funds. At June 30, 2010, the Bank�� investment portfolio totaled $6 million and consisted principally of investment grade collateralized mortgage obligations and mortgage-backed securities. It invests in mortgage-backed securities insured or guaranteed by Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) or Government National Mortgage Association (Ginnie Mae). As of June 30, 2010, it also had an investment in an affordable housing fund totaling $1.2 million.
Sources of Funds
The Bank�� sources of funds are deposits, payment of principal and interest ! on loans,! interest earned on or maturity of investment securities, borrowings, and funds provided from operations. It offers a variety of deposit accounts to consumers with a range of interest rates and terms. Its deposits consist of time deposit accounts, savings, money market and demand deposit accounts. The Bank�� borrowings consist of advances from the Federal Home Loan Bank of San Francisco. It may obtain advances from the Federal Home Loan Bank of San Francisco upon the security of its mortgage loans and mortgage-backed securities. As of June 30, 2010, the Bank had $137 million in Federal Home Loan Bank advances outstanding. At June 30, 2010, it had available additional advances from the Federal Home Loan Bank (FHLB) of San Francisco in the amount of $219.1 million.Advisors' Opinion:
- [By Tim Melvin]
HBCP stock is trading at 94% of book value and is very attractive at the current price.Simplicity Bancorp (SMPL)
Simplicity Bancorp (SMPL) in Covina, Calif., started out decades ago as a credit union for employees of the Kaiser Foundation Hospital. It has since grown to a nine-branch bank with $834 million in assets. SMPL had its conversion IPO back in 2010, and is an extremely attractive takeover target right now. The bank’s equity-to-asset ratio is 16, and nonperforming assets are less than 2% of the total, so that’s a solid financial condition to be in.
Best Sliver Stocks To Own For 2014: Strattec Security Corporation(STRT)
Strattec Security Corporation engages in the design, development, manufacture, and marketing of automotive access control products. The company?s products include mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock housings, latches, power sliding door systems, power lift gate systems, power deck lid systems, door handles, and related products. It also provides full service and aftermarket support for its products. The company offers its products primarily for automotive manufacturers. It markets its products in the United States, Canada, Mexico, Europe, South America, Korea, and China. The company was founded in 1994 and is headquartered in Milwaukee, Wisconsin.Advisors' Opinion:
- [By Martin Vlcek]
Strattec Security Corp. (STRT) is a growing small-cap company with more than 100 years in the automotive supply industry and strong sales growth since 2009. The success and growth of Strattec are still mostly influenced by the global automotive markets. As many analysts still predict ongoing industry growth, the company is poised to continue strongly benefiting from this automotive tailwind. However, the company's recent diversification efforts into new product lines, industries outside of automotive and countries outside of the U.S. have created multiple new growth drivers that will ensure Strattec's continued robust sales and EPS expansion. The company's growth has also become much more balanced and more resilient to a potential automotive industry shock or U.S. slowdown.
Best Sliver Stocks To Own For 2014: Nanosphere Inc.(NSPH)
Nanosphere, Inc. develops, manufactures, and markets molecular diagnostics platform, the Verigene System that enables genomic and protein testing on a single platform. Its Verigene System includes a bench-top molecular diagnostics workstation with nanoparticle technology that provides the ability to run multiple tests simultaneously on the same sample. The Verigene System is used for testing infectious disease assays, human and pharmacogenetic assays, and ultra-sensitive protein assays. The company serves hospital-based laboratories and academic research institutions in the United States. Nanosphere, Inc. was founded in 1998 and is headquartered in Northbrook, Illinois.Advisors' Opinion:
- [By Jon C. Ogg]
Nanosphere Inc. (NASDAQ: NSPH) is not exactly a household name in molecular diagnostics, and apparently it needs better name recognition for boosting sales. Its sales were disappointing and the stock was down almost 18% at $2.40, and now we have indications down around $2.35 in Wednesday trading indications.
- [By Roberto Pedone]
One under-$10 medical equipment player that's quickly moving within range of triggering a major breakout trade is Nanosphere (NSPH), which develops, manufactures and markets an advanced molecular diagnostics platform, the Verigene System, which enables simple, low-cost and highly sensitive genomic and protein testing on a single platform. This stock has been hit hard by the bears so far in 2013, with shares off by 27%.
If you take a look at the chart for Nanosphere, you'll notice that this stock is just starting to spike sharply higher today back above its 50-day moving average of $2 a share. This spike is quickly pushing shares of NSPH within range of triggering a major breakout trade. That breakout will trigger once NSPH manages to take out the upper-end of its recent sideways trading chart pattern.
Traders should now look for long-biased trades in NSPH if it manages to break out above some near-term overhead resistance levels at $2.17 to $2.20 a share and then once it takes out its gap down day high from August at $2.29 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 652,718 shares. If that breakout hits soon, then NSPH will set up to re-fill some of its previous gap down zone from August that stated just above $3 a share. If that gap gets filled with volume, then NSPH could easily tag $3.50 to $4 a share.
Traders can look to buy NSPH off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $1.81 to $1.77 a share. One can also buy NSPH off strength once it clears those resistance levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.