RESEARCHING STOCKS…

1. RESEARCHING STOCKS… …THE OTHER 20% By Lynn Ostrem, VP Crow River Investment Club www.bivio.com/crowriver

2. First Things First: • Find an interesting stock; • Complete a preliminary SSG; • Do a cursory review; • Order an Investor’s Packet; • Roll up your sleeves!

3. Completing a Preliminary SSG What do we mean by quality?

4. 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).

5. The Cursory Review

6. Online Sources for a Quick Review:

7. A Cursory Review using Multex Investor www.multexinvestor.com

8. Enter the ticker or company name and click GO!

9. Tour the items on the left column

10. 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!

11. News & Significant Developments: Bad news from Worldcom—weeks before the other shoe dropped. Save time – Check the news first!

12. Company Overview & Business Description: • Quick Access to: • Company description & profile • Corporate website • Financials • Press releases • Investor relations • Contact information • Products & services

13. 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?

14. Highlights Report: The best is at the bottom!

15. Earnings Estimates: The first box will give us the analysts’ Long-Term Growth Rates. Do they meet our goals??

16. Ratio Comparison: Compare your company to its industry, its sector, and the S&P!

17. Advanced Strategies… For the Cursory Review

18. 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 people buying or selling for no apparent reason!

19. Insider Trading (Advanced): Simply match the options with the Sales. Analyze what’s left.

20. Postive Cash Flow (Advanced): The first sub-total is Cash from Operations. Is it positive?? If Net Income is positive, Cash should be, too!

21. 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!

22. Accts. Receivable & Inventory (Advanced): Sales are on the Income Statement Accounts Receivableis on the Balance Sheet Inventory is on the Balance Sheet

23. 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%)

24. If you like what you see… …Order that Investor’s Packet early!

25. Ordering the Packet Online: Most requests are handled under the “Contact Us” link found on the Investor Relations page.

26. Ordering the Packet Online: After you fill in your name and address, most companies will offer the following information:

27. Ordering the Packet Online: 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

28. 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.

29. 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.

30. Performing an In-Depth Study… …The Tools

31. Using the Right Tools: • Company Website • Annual Report • 10K (SEC Annual Filing) • 10Q (SEC Quarterly Filing) • Proxy Statement • Analyst Reports • News & Articles • Conference Calls

32. Performing an In-depth Study… …What do we Look for?

33. Company Review: • Business Model • History • Products & Services • Customer Demographics • Research & Development • Quality of Management

34. Company Review: • 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?

35. Example: Who are they?

36. Example: What is their market share? • Stats from PepsiCo’s 2000 Annual Report:

37. Example: What is their market share? • Stats from PepsiCo’s 2001 Annual Report:

38. 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.

39. Company Review: • 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?

40. Example: Products & Services • From International Speedway’s 2001 10K: Is this diversified??

41. Example: Customer Base • From Lincare’s 2001 10K:

42. Company Review: • 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?

43. Example: Research & Development • From Pfizer’s 2001 Annual Report: • Compare sales to R&D Expenses

44. Example: Research & Development • From Pfizer’s 2001 Annual Report: • Financial Review - Outlook

45. Example: 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!

46. Example: 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?

47. 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

48. 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

49. Finding Industry Information: • Search Engines – such as dogpile.com, about.com, yahoo.com or google.com

50. Finding Industry Information: • Don’t forget Value Line’s Industry Page! They cover several statistics for competing companies in the Value Line universe.