Showing posts with label Hot Stocks To Own. Show all posts
Showing posts with label Hot Stocks To Own. Show all posts

Friday, March 30, 2012

Take a hard look at your financial life before assuming you're ready

As we approach the end of 2010, it�s only natural to get philosophical about the promise a New Year. But if your plans for the next 12 months involve retirement, you had better be doing more than just day-dreaming of shuffleboard and visits to the grandkids. Retiring is serious business and requires even more planning than your working life did.
Before you offer up a toast over the holidays promising your pending retirement, take a hard look in the mirror. There are a number of telltale signs that you may not be ready to quit working and live on a fixed income just yet.
Here are 11 signs that you won�t be retiring in 2011:
1. You Have Set a Date With Death. There is nothing more morbid than an investor or would-be retiree who only plans for a finite retirement, writing off the need for further funds since they don�t expect to live any longer than an allotted time. To begin with, modern medicine continues to extend American lives and the quality of those lives. Unless your zero hour for retirement occurs at 90 or 100 years old, I would humbly suggest you revisit your retirement budget — if not for your sake, for the sake of the family members who will be stuck with you otherwise.
2. You Never Worry About Scams. The ubiquitous actor Kevin Bacon has never been one to turn down a role, but after losing $50 million to Bernie Madoff he will surely be working hard in Hollywood for many more years to come if he plans on retiring comfortably. The unfortunate fate of the Footloose star should have set off warning bells in your head to check your account balances as soon as possible. If you�re still just taking your investment adviser�s word for it when it comes to your account balances, you better pick up the phone today and have a nice chat with him.
3. You Have Credit Card Debt. It�s no surprise that with over 30% of 65- to 74! -year-ol ds carrying a balance on their credit cards, bankruptcy rates for Americans over 65 skyrocketed 150% between 1991 and 2007, according to the Consumer Bankruptcy Project. Besides, paying off your credit card and living within your means is good practice for living on a fixed income. Put simply: The more debt you have, the less secure your retirement will be. Unless you have a huge nest egg you should concentrate on eroding your balances before you quit the workforce.
4. You�re Still Supporting Your Family. If Junior lost his job recently and has been living in your basement while he looks for work yet, you won�t be retiring in 2011. Similarly, if you�re in your 50s and looking after your parents who haven�t adequately provided for their own retirement, you�re out of luck. The bottom line is that living on a fixed income is hard enough for an individual or a couple without the added uncertainty of third and fourth parties.
5. You Don�t Know What Your Social Security Benefits Will Be — Or Won�t Be. It�s bad enough not knowing what you�ll receive each month from Social Security. But it�s even worse if you haven�t thought about how the timing of your retirement will affect benefits. Let�s say you�re making $50,000 and were born in 1951. If you decided for �early� retirement next year (age 62 is early according to the Social Security Administration), your benefits would total roughly $1,042 a month. On the other hand if you worked another four years you�ll make nearly $400 more a month — $1,439. And if you somehow stay in the workforce until 70, you�ll make almost twice as much — $1,991 a month. These are just estimates of course, calculated via a free online SSA tool, but you can see that timing plays a huge role in your Social Security payout.
6. You Have a Significant Mortgage Balance. Significant is a vague term, but all retirement planning is subjective. The bottom line is that it�s best to pay off your mortgage if you ! can R 12; in large part because it�s one less thing to worry about when setting a budget. Also, tax advantages of home ownership are slim to none as you approach the end of your mortgage amortization schedule, since payments are almost wholly principle.
7. You Don�t Have a Budget. Even if you know what cash is coming in from the government, that information is useless if you don�t have a plan for the money going out. Once you embark on retirement, it�s very difficult to come up with new sources of income later on if you budget breaks down. Make sure you don�t find that out the hard way by projecting all your expenses.
8. Your Budget Depends on Investments Appreciating or Paying Dividends. Anyone planning to retire in 2009 on stock market profits learned a hard lesson that investments cut both ways. After GM went bankrupt and major banks gutted or outright eliminated their dividends, all would-be-retirees would be wise to not count their chickens before they�re hatched. If you don�t actually have the money locked in to retire in 2011, you shouldn�t retire. Period. And with the specter of inflation on the horizon, even �sure thing� income investments like bonds may fail to grow your nest egg as yields get eclipsed by a rising cost of living.
9. Your Budget Doesn�t Cover Medical Expenses. Retiree medical coverage is a dinosaur among employer benefits, rapidly approaching extinction. If you�re planning to retire before 65, you better be aware that Medicare doesn’t kick in until then. And be prepared for the harsh reality that as a member of an older demographic with higher risk, you may have to pay out the nose — or worse, that some insurers may refuse to cover you. Even after age 65 there are options and expenses to weigh, such as the difference between traditional Medicare vs. Medicare Advantage or the benefits of private �Medigap� supplemental insurance. Health care is becoming increasingly expensive, and thus an increasingly impor! tant par t of retirement planning.
10. Your Retirement Plan is Just a Plan. So you�ve done the math and made the plan. Good for you. But if your retirement involves a significant change in routine or scenery, you better test the water before diving in. If you�re moving to a retirement community or getting a second home in the South for winter, get to know the neighborhood and surroundings before you�re locked into a rental agreement or property you may regret. If you�ve only planned visit the grandkids every few weeks, think about how you�ll fill the other 26 or 27 days in the month and take a few preparatory trips to get used to the travel arrangements. It does no good to set a budget and a schedule if they make you miserable, so make sure you give your new life a trial run. Retirement on paper and reality can be quite different.
11. You Love Your Job. This last point hits close to home. My father David is a fire chief for Syracuse, New York, and thanks to a plush government pension and simple tastes he could retire tomorrow in style — if you consider a beach chair, a book and a cigar stylish. But he won�t. For 30-plus years he�s worked for the city�s fire department and I�m sure he would work another 30 if my mom and his health will let him. So as much as you like to talk about quitting Dad, you�re not retiring in 2011. And we both know it.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter at http://twitter.com/JeffReevesIP.

Friday, March 16, 2012

Are the Earnings at R.R. Donnelley & Sons Hiding Something?

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 R.R. Donnelley & Sons (Nasdaq: RRD  ) , whose recent revenue and earnings are plotted below.
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Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. FCF = free cash flow. FY = fiscal year. TTM = trailing 12 months.
Over the past 12 months, R.R. Donnelley & Sons generated $464.9 million cash while it booked net income of $231.1 million. That means it turned 4.4% of its revenue into FCF. That sounds OK.
All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash flows are of high quality. What does that mean? To me, it means they need to be real and replicable in the u! pcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures).
For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable for the short term) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable; this is good to see, but it's ordinary in recessionary times, and you can only increase collections so much. Finally, adding stock-based compensation expense back to cash flows is questionable when a company hands out a lot of equity to employees and uses cash in later periods to buy back those shares.
So how does the cash flow at R.R. Donnelley & Sons look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.
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Source: S&P Capital IQ. Data is current as of last fully reported fiscal quarter. Dollar values in millions. TTM = trailing 12 months.
When I say "questionable cash flow sources," I mean items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, investors ought to make sure to refer to the filings and dig in.
With 11.2% of operating cash flow coming from questionable sources, R.R. Donnelley & Sons investors should take a closer look at the underlying numbers. Within the questionable cash flow figure plot! ted in t he TTM period above, stock-based compensation and related tax benefits provided the biggest boost, at 3.9% of cash flow from operations. Overall, the biggest drag on FCF came from capital expenditures, which consumed 37.4% of cash from operations.
A Foolish final thought
Most investors don't keep tabs on their companies' cash flow. I think that's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. Better yet, you'll improve your odds of finding the underappreciated home-run stocks that provide the market's best returns.
We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service.
  • Add R.R. Donnelley & Sons to My Watchlist.