On this episode of Industry Focus, Motley Fool analysts Dylan Lewis and Michael Douglass answer a listener question about which online apps, tools, and metrics investors can use to learn more about the publicly traded companies they're interested in. Find out where to get earnings call transcripts online, what EDGAR is and why investors will want to use it, how you might be able to use your library as a resource to learn more about publicly traded companies, some resources from your broker that you might not be aware of, and some of the best stock screeners out there.
A full transcript follows the video.
This video was recorded on June 9, 2017.
Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, June 9, and we're going to be talking about some of our favorite investing tools. I'm your host, Dylan Lewis, and I'm joined in the studio by Fool.com bureau chief and my good friend, Michael Douglass.
Michael Douglass: Honored to be here, Dylan.
Lewis: I don't know if listeners have caught on to this yet, but any time I'm talking about something that not expressly tech-related, you work your way onto the show.
Douglass: [laughs] Somehow. It's funny, because when we get listener questions that are not specifically tech-related, and Dylan is like, "Oh, I'll put up my hand to take that," I'll meerkat, look up from my desk and be like, "Hey, Dylan, do you want to do one together? It would be fun."
Lewis: I get it. You long for the days where you used to host the show.
Douglass: Not one of them, but two.
Lewis: Two. But, we bring you back here and there.
Douglass: I appreciate it. I've been out to pasture for a long time. Everyone who does it has done such a fantastic job, so it's really fun to come back from time to time.
Lewis: And we're happy to have you. You queued it up a little bit, we're talking about a listener question that we got here from Peter on today's show. This was a submission we received on a forum we have pinned to the top of our Twitter feed. If you ever have anything you want us to hit and you forget our email, firstname.lastname@example.org, you can always go to Twitter and just drop something to the Google (NASDAQ: GOOG) (NASDAQ: GOOGL) form there.
Douglass: That's email@example.com, or check it out on Twitter.
Lewis: @MFIndustryFocus. Peter wrote in, "I would love, love, love a show on what apps, online tools, and metrics you find valuable when finding and evaluating companies." I think the way we wanted to handle this is looking at different resources that are freely available to the average person, that don't require some expensive subscription, because here at the Fool, we have relationships with YCharts, we have relationships with Capital IQ. Those are expensive services for the average person. The reality is, a lot of that information is available to anybody, it's just that those services do a good job of organizing it for you. So if you want to find it, chances are it's out there, you just need to be looking in the right place. So, why don't we start with what I consider information resources. These are large databases in places where companies have to file information, in most cases. I think the biggest one out there by far, the one that most investors are familiar with, is EDGAR. EDGAR is not some friend, EDGAR is maybe the largest information resource for publicly traded companies. Do you know what EDGAR stands for, Michael?
Douglass: Yes I do, it's Electronic Data Gathering Analysis and Retrieval, Dylan. Everyone knows that. Did you look that up right before the show?
Lewis: Of course I looked it up!
Douglass: Of course I did, too. [laughs]
Lewis: Does that not sound like the most named-in-the-'90s internet thing ever?
Douglass: It feels like, a lot of the time, when the government decides to name something with a cool acronym -- I don't even remember what the PATRIOT Act stands for. PATRIOT is an acronym, it actually stands for Providing something Tools.
Lewis: You're doing great.
Douglass: [laughs] But, yeah, the government has a lot of fun with this from time to time.
Lewis: Yes. They seem to do a very good job creating acronyms that sound like something a lot more interesting than it is. Basically, EDGAR is something that collects all of the information on publicly traded companies that they need to file.
Douglass: Yes. In a lot of cases, that's things like 10-Ks, which are your annual reports for U.S.-based businesses, your 10-Q, your quarterly reports. These reports in particular contain a wealth of information. Most 10-Ks that I've looked at are over 100 pages, just to give you a sense, and they have to document from top to bottom, "Here's what our business does, here's how we organize it, here's why we organize it that way, here are the threats, here are the opportunities, here's what the year-over-year numbers look like, here's our balance sheet, here's our income statement, here's our cash flow." It's almost overload, in a lot of ways. But, if you know what you're looking for, then it's an incredible resource for very quickly getting to the answers you need.
Lewis: Really, those are the types of things that, as qualitative, and "looking at the core business"-style investors that we are here at the Fool, are super important. I know that maybe Peter was looking for some kind of metrics-based stuff. If you're more in the technical realm with how you look at it, a lot of the stuff we're going to talk about on today's show won't be as relevant to you. But, everything we talk about is going to be geared toward getting more information, more commentary about what's going on with the business. And they're all available for you. I think one thing that a lot of people don't realize, looking at another resource, is that if you have a brokerage account with one of the major brokers -- I have a Merrill Lynch account, as do you -- you have a wealth of gated research available to you. And most people don't even think to look there.
Douglass: Yeah. It's not just Merrill, it's also your Fidelitys, your TD Ameritrades, all of these folks have all kinds of really good research that can be helpful. You talked a little bit about us being qualitative investors, looking at specific numbers and understanding, revenue was up 20% year over year or whatever for a company. But when you're looking for context for that, these analyst reports that you usually get for free as part of being a brokerage member, are just enormous, because they can just give you, you have somebody who really knows the space, they are the biotech analyst or whoever, or the retail analyst, or part of a team, and they give all of their take. Like, "Here's where we see the business going, here are the opportunities, here are the things that are really happening," so then you can take that information from that 10-K and really distill it down to the important things. When you have a 100-plus page document on a business, there's going to be a lot of stuff that's less important and a lot of stuff that's more important. And what you really want to do is be able to crystallize down to that really important stuff, and then follow that. This research that you get in your brokerage can be really helpful for that.
Lewis: Very often those research notes are widely reported on. You'll see them, whether it's on Fool.com or many of the other investing websites out there, you'll see analysts talking about analysts' work. That's great, it's a nice little appetizer for that coverage, but the reality is it's a lot better to look at the primary coverage, because if you're looking at something that has been distilled down and recontextualized, it's a second-hand perspective on things.
Douglass: Right. From someone who really pays attention to it on a daily basis. For me, when I'm trying to understand what's going on with a particular business, I start by looking at the numbers and figuring out how they organize themselves and all that kind of stuff. One of my next things is to try to understand the context, get the color behind it. Analyst notes can be really helpful for that, so can company presentations.
Lewis: Company presentations. And that's why I think going to the investor relations website for these businesses is huge, and it's such an underappreciated asset that the average investor has at their fingertips.
Douglass: How did I tee that up for you?
Lewis: So well. It's almost like we outlined the show.
Douglass: [laughs] It's almost like I've done before this in the past, a couple of times. So, the investor relations website is huge. Honestly, pick a publicly traded company, Google "[name of company] investor presentation," and odds are pretty good, if it's at least in the S&P or something along that size, that they will have a PowerPoint deck that's like 50 slides where they just explain how they think about the business in a really user-friendly way with lots of visuals.
Lewis: You didn't know that I did this, because I sent you an earlier version of our notes, but I did that as an example. If you go to Twitter's IR page, for the most recent quarter, they have their conference call webcast, which you can listen to.
Douglass: Which is awesome, by the way.
Lewis: Yeah. It's management giving commentary on the most recent financial results. You have the shareholder letter. You have earnings press release. You have the slide presentation, which often gets into a lot of non-GAAP things, which can be particularly important for some of these tech companies, and then you have the selected company metrics and financials. That is a ton of information to go through, and it's all right there for you. For most major companies, you will have that breadth of information, it's going to be there.
Douglass: Yeah. For me, just to emphasize two things, getting that color about the company, management explaining to you how they think about their company as they're explaining it to analysts, the analysts who are writing these reports, that's so helpful in terms of understanding how they think about things and how the company is competing. Additionally, during the webcast, there are usually questions asked by analysts. Oh my gosh, what a wealth of information, because at that point, you have your management team no longer on script. It's just that people are asking them questions and they're answering them. I've found that's one of the best ways to really understand what's going on in a business. If an analyst thinks something is worth bringing up, well, sometimes it's not, certainly from our way of investing, but sometimes it really is so helpful, so probative in terms of really understanding how the business works.
Lewis: Probative, what a great word!
Douglass: Thank you.
Lewis: If you do not feel like listening to the conference call webcast, there's an outlet out there that does a pretty good job of making transcripts available. We will call them a competitor because they operate in the same space as us. But, I have to say I think Seeking Alpha does a really great job making company conference call transcripts available.
Douglass: Yeah. It's one of those things where, to be honest, I'm kind of surprised that the companies themselves don't just provide a transcript of their calls.
Lewis: Some do.
Douglass: But I'm surprised it's not everybody, because it's a relatively easy thing to do for one call. Seeking Alpha does it for thousands of companies, so it's a little bit more of an undertaking there.
Lewis: And the nice thing about having the written-out transcript is that you can CTRL+F exactly what you're looking for, whereas if you're listening to the webcast, you're basically stuck listening to a 45-minute thing trying to find the key things that you're trying to hone in on.
Douglass: Was that at minute 20? Maybe 23?
Lewis: Found it! [laughs] Yeah, it's kind of a wild goose chase. So, thank you to Seeking Alpha for doing that, because it's a nice resource.
Lewis: One thing that I added late to the discussion here that you don't know I'm going to bring up --
Douglass: Ooh, exciting.
Lewis: -- is, don't forget about your local library. Something that's super powerful that a lot of people don't realize they have access to are the major research journals that are available through their local libraries. I grew up in Bergen County in Jersey, and the BCCLS, which is the Bergen County Cooperative Library System, that's how they pool all of their resources among the county libraries, has access to research databases like EBSCOhost. So, if you want access to things like Consumer Reports or Fortune magazine, you can often find articles there without a subscription. The same goes for people who have access to university resources. If you're a college student or a faculty member, or maybe you're paying for someone's tuition now, ask them about their login. It's a nice way to get some very premium information on the cheap.
Douglass: Not that cheap, if you're paying tuition. [laughs]
Lewis: That's true.
Douglass: You're paying a pretty penny for it. But, yeah. I've even heard of some universities who give their alumni access to certain things after they've graduated. So, there's a lot of opportunity there. There's a lot of great stuff out there, particularly in terms of mindset and understanding broadly investing behavior and psychology.
Lewis: Flipping it over to tools and screeners, because this is something we wanted to hit with the question we received. Before we get too far into it, I will plug one thing that David G. mentioned on his Rule Breaker Investing podcast. I don't know if a lot of Industry Focus listeners do listen to that show -- I'm assuming that they do --
Douglass: It's a fantastic show. Strongly recommend.
Lewis: If you aren't, give it a shot. It's the man behind most of great stock picks from The Motley Fool. But he plugged buyupside.com's stock returns calculator as a tool that he really likes, I think it was from an episode back in April. The thought here is, it's something that helps you account for splits, special dividends, etc., over the life of a stock. And it actually gives you the annualized returns that come from that stock, which is often a very difficult thing to do. So, if you're looking for those types of calculations, great tool there. I know that we also have some financial calculators on Fool.com, another nice resource. I think it's a little bit more your realm, do you want to speak to that a little bit?
Douglass: Sure. Ours tend to be more along the lines of your personal finance thinking: "If I'm saving X amount, how much will I have at retirement, assuming certain things like inflation," and all that kind of stuff. So it's really helpful in terms of budgeting and thinking through what your long-term cash flow may look like when you're actually thinking about your retirement scenarios. We have some calculators that are also useful for stocks specifically. Check it out, Fool.com/calculators. There's a lot of information there, and a lot of good stuff. What we try to do for most of the calculators is have an article published about each of them so you can understand how we think about each calculator and the puts and takes as you're thinking about how to use that and what that could mean.
Lewis: It's a lot more helpful than just having numbers spit out at you.
Douglass: Right, because context matters.
Lewis: Looking at some of the other outlets out there, I think MarketWatch has a pretty good simple screener. Screeners are only as good as whether they have the specific metric that you're looking at. So, it might be that you need to check out a couple different ones. I think Yahoo! Finance also has a pretty solid stock screener. One of the things I like about that one is it updates in real time as you filter down, so you can see what you're working with for a list. For as much as I like Google Finance for some things -- I think it's amazing for news aggregation and basic charts and mock portfolios and things like that -- the stock screener never seems to work for me. I don't know if that's something that you run into, Michael, but I continue to have trouble with that one.
Douglass: Gosh, to be honest, I haven't used Google Finance's stocks very much. I regularly use my brokerage's, Merrill's. So, that's another thing, going back to that brokerage conversation, most of them have some kind of stock-screening tool to help you with things like, "OK, I'm looking for dividend stocks that yield 3% or more." A lot of brokerages will have that kind of information. Or, if I recognize that my portfolio is 100% in energy, maybe I want to diversify little bit, so let me look for highly rated stocks that are in tech or biotech or wherever. There's a lot of opportunity, again, depending on your brokerage, but most of them, this is a pretty standard thing, for them to have a lot of stock screeners you can use.
Lewis: Yeah, I think it's easy to groan about the $7 per trade that you pay with the brokerages. And if you never use any of these resources that come along, you wouldn't appreciate the fact that you're paying for it. But the reality is, that's where your $7 are going. You might as well consider it a transaction, because it is, and you may as well get as much value out of the service that you're paying for as possible. Michael, before I let you go, any other metrics, tools, interesting little hacks to get information?
Douglass: Sure. I've always enjoyed using Morningstar (NASDAQ:MORN). This was particularly the case when I was really new to investing before I came to the Fool and had access to all the cool stuff that we have. But, when I'm looking up a company on Morningstar, usually they'll have this key stats area, and they'll say, is it green or red, essentially, is the P/E ratio lower than other competitors in the industry, is return on assets or equity higher? And listen, I don't believe too strongly in metrics-based investing. I think metrics often miss a lot of the story, and you really have to understand that color and how good management is at what they're doing, because numbers can't tell you that always. I think really bad numbers might indicate bad management, but in a lot of ways, good numbers can mask real problems. I think all investors have those stories of stocks that have had that issue. But, it's just really helpful in terms of a quick benchmark. Like "I'm looking at this company and it seems super expensive, but when I benchmark it against the industry, it's actually pretty average valuation," so that's very helpful.
Lewis: And I think the story you see with what we highlighted here in terms of resources and metrics and the different screeners that are available and things like that is it's a blend. You want to understand what's going on with the business, you want to understand management's commentary on the business. It's almost more important than the numbers. The numbers are there and you need to know them, you need to be briefed on what's going on quarter to quarter so you can see the trends as well. But, really, it comes down to doing the hard research, which is a lot of reading, as it turns out.
Douglass: Yeah. It's interesting, because I think all too often, the numbers obscure the true story. If you can understand the arc of where this business is going, that will tell you so much more than how big the dividend is today, or what percentage of the market they control today. What's really going to be interesting is, what does 10 years from now look like? I think that's where that storytelling can come into play. And all too often -- and this happened to me, certainly, particularly early on, but I'm sure it still does from time to time today -- investors will focus on a particular number, and just, "OK, that's the valuation, that's fine," and instead miss what the opportunity looks like. And that's the real chance to get your five- and 10- and 100-baggers.
Lewis: I'm going to have to work "the numbers obscure the true story" into the title or description of the show, because it's such a good catch-all for what we just talked about. Michael, we have to wrap up. Anything else before I let you go?
Douglass: I think that's the main stuff.
Lewis: It was a pleasure having you on again.
Douglass: It was fun. Thanks, Dylan.
Lewis: Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out and say, "Hey," shoot us an email at firstname.lastname@example.org.
Douglass: Or tweet at us.
Lewis: Or tweet at us, @MFIndustryFocus. If you're looking for more of our stuff, subscribe on iTunes, or check out the Fool's family of shows at fool.com/podcasts. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thank you to Anne Henry for doing everything she does behind the glass. For Michael Douglass, I'm Dylan Lewis, thanks for listening and Fool on!