July 16, 2020
We introduced you to Professor Joel Litman on the cover of our September magazine…
His research is read by more than half of the world’s 300 biggest money managers – from multibillion-dollar hedge funds and government-run sovereign funds to billionaires and top financial advisers. They use Joel’s system to figure out the real earnings numbers before they buy or sell a stock.
And for good reason…
His “Truth Detector” system has caught dozens of companies engaged in misleading or outright fraudulent financial shenanigans.
And it has identified hundreds of companies that are actually putting up better numbers than it seems – leading to triple-digit gains for in-the-know investors.
One widely available stock gained more than 2,000% since Joel’s system identified it as an opportunity in a Barron’s magazine story.
For years, Joel’s system was only available to the biggest players on Wall Street.
But now, he’s taking his research to Main Street – and spilling the secrets behind what Wall Street won’t tell you. He knows what a company might be hiding in its balance sheet or accounting statements… and now you can, too.
The advantage of knowing what other investors don’t can be extraordinary.
And today, coming out of the COVID-19 market sell-off – he has a brand-new approach focusing on smaller companies with even bigger upside. To learn more about this rare investment that appears after every crisis, click here.
And then read on for an important essay from Joel…
Publisher, American Consequences
The Biggest Moneymaking Opportunity of the Next Decade
By Joel Litman
I’ve waited 15 years for this.
If you have any cash to invest, blue chips like Apple (AAPL) or Microsoft (MSFT) aren’t going to give you the highest returns. And forget about buying gold, bonds, options, or CDs.
Instead, I’ve found a single investment that could legitimately turn every $5,000 stake into $50,000. And I know this because I saw the exact same setup back in 2009 – the last time the U.S. came out of a major crisis – and spectacular results followed.
For most, the Great Recession was a nightmare. U.S. stocks cratered… American households lost a total of $7 trillion… and thousands of people lost everything.
But coming out of the Great Recession was one of the best years of my 30-year career. That’s when I launched Valens Research, a boutique research service focused on forensic accounting… to reveal Wall Street’s biases and broken incentives.
You see, when the market sells off, people panic and dump stocks indiscriminately.
Think back to the February sell-off… shares of blue chips like credit-card giant Visa (V), global-entertainment icon Disney (DIS), and athletic-apparel behemoth Nike (NKE) all fell around 40%. Bank of America (BAC) got cut in half. And plane maker Boeing (BA) fell almost 75%.
While most people were panicking, I found a unique type of investment that thrives after a crisis. It thrived after the global financial crisis, and the February sell-off gave investors a perfect buying opportunity again.
Most people don’t know how to react to sharp declines in the market like what we saw back in February.
Do you “buy the dip” and wait for the market to recover, or do you move to the sidelines and wait for the market to settle down a bit?
What if I told you that it didn’t matter?
Let me explain…
It doesn’t matter whether the economy is humming along or cratering.
Certain companies – if you know how to find them – will do incredibly well even during a recession, a bear market, or a crisis… because they’re making money that isn’t accurately reported in any of their public filings.
It’s a fault of the U.S. accounting system, which is using an outdated set of rules known as generally accepted accounting principles (“GAAP”). And because Wall Street is using these GAAP numbers, nobody is correcting those errors.
I’m talking about microcap stocks – companies that are so tiny that no Wall Street analysts cover them, thus individual investors aren’t able to grasp their real performance. And they struggle to represent their ability to generate massive cash flow because they have to adhere to GAAP’s accounting rules.
As the veil is lifted and investors can finally begin to see these companies’ real performance, these tiny stocks start to take off, no matter what’s happening to the overall stock market.
Take footwear company Skechers (SKX), for example…
Back in March 2009, from all its public filings, it looked like the company was barely making any money. The stock had gotten clobbered and was trading for less than $2. Its entire market cap was just $290 million.
Investors were worried that Skechers wouldn’t survive the crisis. But we knew the company would be just fine… After we fixed the company’s GAAP accounting, our Uniform Accounting showed that the company was trading at a small fraction of its book value.
Companies only trade at a huge discount to book value if they’re about to go out of business. But our forensic analysis showed that Skechers was plenty healthy. While investors were panicked about the company, after removing the accounting “noise,” our numbers showed that Skechers was still making $45 million in real earnings in 2008.
With a $290 million market cap, the company was trading at a Uniform price-to-earnings ratio of less than 7 times… a massive discount to any reasonable valuation, especially as our credit analysis showed the company was at no risk of going bankrupt.
By mid-2010, the stock was up 730%. But Skechers was just getting started…
The market continued to undervalue the company based on its as-reported GAAP numbers. As recently as 2012, Skechers’ as-reported return on assets (“ROA”) was only 1%. In reality, after we adjusted the accounting noise, its “clean” Uniform ROA was 4 times higher…
As investors continued to realize these distortions, SKX shares continued higher. By August 2015, the stock had risen more than 2,700%. Take a look…
But Skechers wasn’t a one-time thing.
As the market bottomed in early 2009 in the wake of the global financial crisis, I also told my clients to buy shares of three other clothing retailers and generated multibagger returns: Timberland, up 301% before it was acquired… Hanesbrands (HBI), up 445%… and Liz Claiborne, up 878% before it was bought out, too.
In each of these instances, the market had it all wrong… But my forensic analysis cut through the noise and showed me that these tiny, unfollowed, misunderstood companies were a lot more profitable – and most important, a lot safer – than the market was giving them credit.
When a crisis comes along, people will always panic and sell stocks – even ones like Skechers that are gushing cash – because GAAP rules mean they have no idea how profitable the company really is.
And right now, my team of 100 forensic accountants and analysts and I are seeing dozens of opportunities like Skechers across the microcap universe. It’s the biggest moneymaking opportunity of the next decade. You just have to know where to look…
P.S. When a crisis comes along, it’s actually one of the best things that can happen to you if you understand how forensic analysis works. You end up finding stocks you’d never consider otherwise… And they’re often trading at absurdly cheap prices because, in a hurt economy, people have no idea if these stocks are valuable or worthless.
And that’s why I’m pounding the table on a very specific investment right now – in a year of such crisis and confusion. To learn more about an easy shortcut you can use to find these incredible opportunities before they soar 1,000% or more, click here.
Now here are some of the stories we’re reading…
What Wall Street Won’t Tell You
The inside story of the iconoclastic accountant who knows what the balance sheet hides.
Stock futures jump after new Moderna data stokes vaccine optimism
Moderna’s vaccine produced neutralizing antibodies in all 45 patients included in an early-stage human safety trial, according to data published after market close by the peer-reviewed New England Journal of Medicine.
Banks Stand to Make $18 Billion in PPP Processing Fees From CARES Act
“Basically it’s free money,” Fischer said. For some banks, this money represents a hefty windfall. New Jersey-based Cross River Bank’s estimated $163 million haul would be more than double its net revenue last year. JPMorgan Chase could make $864 million.
Covid Conversations With One of America’s Richest Men
The rich were poised to profit while the vulnerable suffered and the elderly died. It was such a bleak picture. “Yes, it is,” he said. “It’s horrible” – he recognized the extent of the agony. He just didn’t seem able to imagine an alternative.
And let us know what you’re reading at [email protected].
Publisher, American Consequences
With P.J. O’Rourke and the Editorial Staff
July 16, 2020