Free help in stock-pick­ing, cour­tesy of SEC

The Washington Times Daily - - Business -

As quar­terly earn­ings re­ports slow to a trickle and eco­nomic data in any given week are light, most pro­fes­sional in­vestors use the down­time to catch up on what’s afoot in var­i­ous in­dus­tries, sift­ing through that daunt­ing pile of read­ing that tends to ac­cu­mu­late. That pile can in­clude news­pa­per and mag­a­zine ar­ti­cles, press re­leases, third-party re­ports and stud­ies, and one of my per­sonal fa­vorites — cor­po­rate fil­ings with the Se­cu­ri­ties and Ex­change Com­mis­sion.

One of the more well-known fil­ings a com­pany makes with the SEC is a 10-Q , which re­caps a com­pany’s per­for­mance on a quar­terly ba­sis through­out the fis­cal year. These re­ports gen­er­ally com­pare last quar­ter to the cur­rent quar­ter and last year’s quar­ter to this year’s quar­ter, which of­ten means greater de­tail as to the health of the busi­ness, as well as what is driv­ing its per­for­mance, for good or ill.

Gen­er­ally speak­ing, a com­pany’s 10-Q needs to be filed within 45 days af­ter the end of a fis­cal quar­ter. In be­tween 10-Qs, a com­pany must file a Form 8-K in or­der to no­tify in­vestors of any “ma­te­rial” events that oc­cur. That no­ti­fi­ca­tion in­cludes a de­scrip­tion of the event, which can range from a change in di­rec­tors or the de­par­ture of a CEO to the ac­qui­si­tion or sale of a sig­nif­i­cant as­set.

From my per­spec­tive, one of the most use­ful doc­u­ments a com­pany files with the SEC is its 10-K. For peo­ple who are first learn­ing about a com­pany — and by that I mean rolling up their sleeves to un­der­stand in depth the dif­fer­ent busi­nesses a com­pany has and the in­dus­tries in which it com­petes — the 10-K is a trea­sure trove of in­for­ma­tion.

The 10-K in­cludes in­for­ma­tion such as an over­view of the busi­ness; risk fac­tors; com­pany his­tory; or­ga­ni­za­tional struc­ture; le­gal pro­ceed­ings; con­sol­i­dated fi­nan­cial data; man­age­ment’s dis­cus­sion and anal­y­sis of the com­pany’s op­er­a­tions; and au­dited fi­nan­cial state­ments, among other in­for­ma­tion. This an­nual fil­ing with the SEC is dif­fer­ent from the glossy an­nual re­port that com­pa­nies mail to share­hold­ers, but, given their re­spec­tive na­tures, the glossy an­nual re­port may in­cor­po­rate some or all of the 10-K fil­ing.

I find a 10-K to be a great primer on a com­pany be­cause of the amount of in­for­ma­tion and the de­gree of de­tail it con­tains. It al­lows you to do your home­work and re­ally un­der­stand where the com­pany com­petes — on an in­dus­try, prod­uct and ge­o­graphic ba­sis; where and in what busi­nesses it gen­er­ates the ma­jor­ity of its prof­its; and how that has evolved over the past few years. More im­por­tant, com­pa­nies not only spell this out, but there are ta­bles of in­for­ma­tion that al­low you to put the data into per­spec­tive and draw some in­ter­est­ing con­clu­sions.

For ex­am­ple, Dick’s Sport­ing Goods’ most re­cent 10-K fil­ing, filed with the SEC on March 16, re­veals the vast ma­jor­ity of the com­pany’s sport­ing-goods stores — nearly 78 per­cent — are east of the Mis­sis­sippi River. Check­ing the Sher­win-wil­liams 10-K for 2012, we find that ti­ta­nium diox­ide and other petro­chem­i­cals are key in­gre­di­ents for the com­pany’s paints and coat­ings and that strong global de­mand for those in­puts, along­side ca­pac­ity con­straints, has re­sulted in tight sup­plies and sig­nif­i­cant price in­creases.

While those are il­lu­mi­nat­ing in terms of those busi­nesses, 10-Ks can also pro­vide in­for­ma­tion that helps as­sess growth prospects over the next few years. This is il­lus­trated in the 10-K filed re­cently by GNC Hold­ings, in which the com­pany cites data from the Nu­tri­tion Busi­ness Jour­nal’s Sup­ple­ment Busi­ness Re­port 2011 show­ing the vi­ta­min and sup­ple­ment in­dus­try is poised to grow at an an­nual av­er­age rate of ap­prox­i­mately 3.7 per­cent through 2017.

Given that most com­pa­nies end their fis­cal years on Dec. 31 and have to file their 10-Ks within 75 days af­ter the end of the com­pany’s fis­cal year, there is no short­age of read­ing ma­te­rial these days. Bet­ter yet, you can ac­cess it all free at www.sec.gov.

Pick a com­pany or two, roll up your sleeves and have fun.

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