Here Are 11 Stocks You Should Own in 2019 (Q1 Edition): How We’re Using Alternative Data to Predict This Year’s Winners

After a tumultuous end to 2018, many Sentieo clients and friends have asked us for a shopping list of attractive stocks for 2019. As the only financial data platform that combines traditional financial data with alternative data, Sentieo is uniquely positioned to identify stocks that had positive Q4 topline performances which should translate into stock upside in 2019.

We’ll cover the 3 picks below in this blog post, but download the full report to see all 11 of Sentieo’s Stock Picks.

  1. LULU
  2. NTDOY
  3. TREE

Our Methodology: Why Does Alternative Data Predict Future Results?

Alternative datasets are a powerful new tool in an investor’s toolkit. Focusing on digital ‘breadcrumbs’ left by consumers as they browse the web, search for products and websites and discuss products on social media, we are given a bird’s eye view of weekly demand trends for various consumer and tech businesses.

Sentieo curates a number of these alternative datasets and marries them with traditional financial data such as revenues and company KPIs, analyzing both history and forward analyst consensus estimates. Using Sentieo’s Mosaic tool, we are able to visualize and regress these datasets to generate signals on companies that show:

a) High correlations between revenue/KPI and alternative data, and

b) Large accelerations in alternative data trends versus expectations, which we use as a proxy for end user demand

Last year, the team accurately predicted the Netflix, Snapchat, Twitter, Skechers, and GrubHub beats using Sentieo’s Mosaic Index.

For our 2019 Picks, we use Sentieo’s Mosaic Index as the key initial screen and then pair it with our team’s 60 years of qualitative buyside stock picking experience. On the qualitative side, we don’t hew to a single investment style or approach, but we focus on revenue growth as the most important long-term driver of returns.

Our ideal businesses have great revenue growth because they:

a) Are in growth industries supported by long-term secular megatrends, and

b) Have market leadership positions in these industries

This approach naturally yields a growth and momentum bias to our portfolio, which we are comfortable with but seek to partially offset by focusing on businesses that are cheap relative to their growth rates. Our picks sport a median forward P/E of 33x and a median PEG ratio of 1.2. We are also heavily focused on earnings momentum for these businesses to prove out their market leadership positions and justify their valuations. We achieve this through a combination of classic earnings revisions models and our proprietary Sentieo Mosaic Index.

We believe each stock on our list is poised to generate great absolute and relative returns in 2019. Since most of our team’s background is in the consumer and technology sectors and our Sentieo Mosaic Index is focused on these sectors, we have mainly focused our picks on these two sectors. This list is also primarily U.S. focused. However, we will be releasing broader lists as Sentieo evolves throughout 2019.

More About Sentieo’s Mosaic Tool

The alternative datasets offered in the Sentieo platform can provide an edge in analyzing consumer and tech businesses, as they often have a high correlation with revenue growth and are available ahead of traditional financial metrics for the period.

In the graphs below, we are presenting quarterly YoY growth using alternative datasets. In all cases, we have compared the data against quarterly revenue growth or a related KPI such as same store sales. The Sentieo Mosaic Index (alternative data composite) is used to assess divergences in alternative data trends versus Street estimates. (Below each chart is a link to the interactive version of the graph if you want to dig deeper.)

As consumer behavior shifts more and more towards digital, indicators like these datasets have become more predictive of tech and consumer company results.

To see all 11 of our top stock picks for 2019, please download our free report here.

Our 2019 Picks

Lululemon (LULU)

Megatrends: Activewear/Casualwear, Fitness, Technology in Clothing

Lululemon essentially created the category of yogawear, and has leveraged this position to become a leading player in the growing casualwear revolution. As the world sheds suits and ties for more comfortable clothing, LULU is a prime beneficiary. As more folks understand the health risks of the modern sedentary lifestyle, they are seeking ways to be more active. LULU is also a leader in technology forward clothing, deploying its years of R&D and millions of pairs of yoga pants shipped to push the envelope on new synthetic fabrics that provide moisture wicking, odor mitigation and better fit in its products.

Despite these powerful megatrends, LULU struggled from 2012-2017, with revenue doubling but EBITDA growing only 33% over the same period. After 15 years of rapid growth, it entered 2012 in a position where it was over-earning and could not keep growing sales at the same margins without serious delivery, quality and brand issues. After spending five years addressing these issues, LULU returned to margin accretive accelerating growth in 2018 and the stock responded, up nearly 100% at peak. Despite a stellar Q3 print, the stock is now down 25% from peak through a combination of disappointing guidance and a brutal tape for momentum and growth stocks.

We believe that management was very conservative with their Q4 guidance, especially given the market volatility. However, we believe that the business momentum remains intact. Overall, U.S. holiday retail sales were very healthy this year, with Mastercard Advisors reporting 5% total growth. Sentieo’s Mosaic Index data suggests this upside was magnified in LULU’s results. Management stated that same store sales were running above guidance when they reported in December and we believe comps accelerated throughout the holiday season. LULU will attend the ICR conference in mid-January and we expect a strong holiday report ahead of the conference.

In the chart below, we compare LULU’s same store sales growth year-over-year (black line) against the Sentieo Mosaic Index’s prediction for same store sales growth (blue line). This prediction, which is created from a regression against alternative datasets, should be used as a directional indicator. Since we are dealing with (1) a small number of quarterly points in our regressions and (2) underlying datasets that can be volatile, we recommend that investors focus less on the magnitude of each point and more on the directional changes. For example, the LULU Sentieo Mosaic Index moved in the same direction as same store sales in 7 of the last 8 quarters. Consensus same store sales estimates (dotted portion of the black line) are calling for a deceleration in the Jan quarter. The Sentieo Mosaic Index is calling for a major positive inflection, however, indicating a potential positive surprise.

Interactive chart

LULU has many levers to continue fueling its current sales momentum. The business has typically been female-driven; however, the men’s business is just hitting its stride and is currently growing 100% year over year. The female/male mix is 78/22 today but there is no reason to think this can’t get to a 65/35 split in the coming years, especially as it continues taking share from male-focused peers like NKE and UA.

LULU has the potential to double its store base in North America, which comprises 88% of sales today. Equally compelling, over the next decade it should be able to replicate its North American playbook in Europe and Asia, providing massive open-ended growth. In 10 years, it’s not unreasonable to think that its geographic mix will be 50/50 North America/Rest of World (ROW), compared to 35/65 for NKE today.

For this open-ended growth, LULU is a very cheap stock, at only 27x 2019 consensus numbers that we think are much too low. On an absolute basis LULU’s $18B market cap is modest compared to NKE at $118B and ADDY at $43B.

 

Nintendo 7974.JP or NTDOY (US Pink Sheet ADR)

Megatrends: Online Gaming, AR/VR

Nintendo creates video game hardware and software. NTDOY’s newest gaming console, The Switch, appears to be a growing success that the market has not yet discounted. The Switch was released in March 2017 and was sold out for holiday 2017. Inventory finally reached in stock positions this summer and sales have slightly disappointed in the last couple quarters, which are seasonally less important. These small sales disappointments together with the Q4 market pullback has taken NTDOY from a spring peak of $55 to $35 today. Nintendo’s most popular game franchise is Super Smash Bros, and the Switch version was just released in early December.

Our Sentieo Mosaic Index data suggests that this release, timed perfectly for the holiday season, appears to be driving a huge uptick in Switch sales, inline with Street estimates. Furthermore, using Japan as a leading indicator for the rest of the word suggests significant additional demand upside in the rest of the world in 2019. While the graph below doesn’t suggest a large Q4 beat such as most other graphs in this piece, we believe in-line numbers are enough for a significant stock move, as the buyside expectations are below consensus numbers.

Interactive chart

While the Switch is the key driver of near term earnings upside, there is much more to be excited about. Nintendo is a leading Japanese company and tends to be conservative in its speed and approach compared to western peers. This means that it has only just released micropayments for its online game worlds over the past year, whereas western peers like ATVI, EA and TTWO have done so nearly a decade ago, with this business generating ~50% of bookings, according to analyst estimates. Furthermore, NTDOY has a stable of classic characters with deep audience affinity such as Mario, Luigi, Yoshi, Donkey Kong, and Pokémon* that are finally being leveraged for movie and TV content. In this sense NTDOY reminds us a lot of Marvel Studios right before it was bought for a song by DIS, leading to the ubiquitous Marvel Superhero content today. Finally, NTDOY is in a privileged position for the coming Augmented Reality / Virtual Reality (AR/VR) wave. NTDOY owns ~20% of Niantic Studios that touched off the Pokémon Go craze in 2016 that doubled NTDOY’s stock price. A deeper slate of AR/VR content releases from both NTDOY and Niantic are expected over the next 18 months, and The Switch also has meaningful AR capabilities that NTDOY has teased with its recent Switch Labo release.

NTDOY offers all this upside at very reasonable price. At 14x Calendar 2019 EPS, it trades at a 25% multiple discount to peers like ATVI and EA despite better revenue growth. It also sports an eye watering 3.7% dividend yield and at a $17B EV it is also relatively small compared to peers and the valuation it will be able to grow into over the next few years.

*NTODY owns 33-50% of Pokémon but appears to exert significant majority-like control

 

LendingTree (TREE)

Megatrends: Online Leadgen, Comparison Shopping

LendingTree is a lead generation business that matches consumers looking for financial products with financial providers. TREE built its business on connecting homebuyers with mortgage lenders, and has used this market share and know how to steadily expand and acquire into new financial service verticals, including student loans, credit cards, auto loans, small business loans and personal loans.

As the market leader for financial leadgen, TREE has been a huge beneficiary of customers switching to the online channel to comparison shop for financial products. This has propelled the stock from $4 a decade ago to $250 today. TREE’s average P/E multiple has been 50x over the past three years, as annual revenue growth has averaged 55% over the past three years. However, TREE’s stock suffered in 2018 as mortgage rates began to climb and the mortgage origination market slowed substantially for the first time in this cycle. With its high multiple, the stock suffered disproportionately, falling from a high of $400 in spring to a low of $200 in the fall despite only one quarterly miss and annual sales and estimates that have continued to rise.

We believe TREE is well positioned to rebound in 2019. As the fed has turned dovish over the past month and global growth and inflation prints have come in below expectations, treasury yields have retraced much of their 2018 surge. Mortgage rates are now coming down accordingly, with rates flat YoY for the spring selling season for homes.

In addition to improvements in the mortgage market, TREE has successfully diversified its business model. In Q3 mortgage revenues comprised only 28% of total revenues, down from 89% in 2013. In addition, TREE announced the acquisition of QuoteWizard in November, giving it a beachhead into the high growth insurance lead-gen market and dropping its mortgage concentration to 22% of total revenues.

Our Sentieo Mosaic Index data is also highly supportive of a rebound. The strong Q4 trend inflection after a year of declines gives us great confidence in our thesis.

Interactive Chart

At only 32x forward EPS, TREE is trading close to its cheapest level in years. The street expects 30% top and bottom line growth for 2019 which we believe is highly conservative, especially since 60% of this growth is inorganic from the QuoteWizard acquisition. As the power of TREE’s diversified model begins showing through in 2019 we believe the multiple can expand substantially and the stock can move past previous highs. Finally, with 27% of TREE’s float short the stock, the stock’s move is likely to be amplified on any good news.

To see all 11 of our top stock picks for 2019, please download our free report here.

Using Sentieo To Quantify the Upcoming Lease Accounting Changes

A major change in lease accounting reporting for public companies is coming up in 2019 (for fiscal years starting after December 15, 2018, to be precise). In essence, leases will be recorded on the balance sheet, resulting in an increase in both assets and liabilities. The change enhances the comparability of balance sheets between companies in the same industries that choose to lease vs. own. For the accounting enthusiasts, we recommend PwC’s 316-page pdf Guide to Lease Accounting and EY’s 397-page guide.

What can analysts using Sentieo do to be better prepared for 2019? We recommend the following DocSearch query for an efficient update on company estimates of the impact within your coverage universe: ASU 2016-02 BEFORE250 (million OR billion)

This query will search for the new standard mentions before a numerical disclosure (up to 250 words). Below, we’ve highlighted a few of the results from our own searches.

Walmart Stores (WMT) “estimates total assets and liabilities will increase approximately $14.5 billion to $16.5 billion upon adoption, before considering deferred taxes.”

View larger.

Ross Stores (ROSS) is indicating around $4 billion.

View larger.

Dollar Tree (DLTR) is looking at a range of $5.5-$6.5 billion.

View larger.

Besides retail, we are seeing more substantive changes coming in transportation.

Union Pacific (UNP) is looking at around $2 billion impact.

View larger.

Hawaiian Airlines (HA) will be adding around $500 million from its aircraft and engine leases.

View larger.

XPO Logistics (XPO) has around $2 billion in operating leases.

View larger.

 

To find out more about how the Sentieo platform can make your research process better, get in touch with us here.

Balance Sheet Seasonality Visualization

One of the most fundamental questions in financial analysis is understanding business seasonality. Seasonality is not always a yes-or-no question, but rather a continuum: some business are distinctly seasonal, and some less so. We all “know” that most tax preparation happens at a certain time of the year, while retail stocks vary quite a bit. But while revenue/Income Statement seasonality is “obvious,” in this post we will focus on Balance Sheet seasonality. We will use Ulta Beauty Inc. (ULTA) as an example.

As is the case with many retailers, ULTA skews towards Q4 (FYE is January). We can see how revenue and EBIT spike in Q4, but how does this affect Balance Sheet items? (chart viewer)

Let’s start with Cash and Equivalents on the Balance Sheet. The YoY balance will vary (for example, ULTA has used cash for share buybacks) but we can see that cash is at a low point in Q3 and spikes in Q4: the holiday season sales in Q4 build-up cash, while the inventory build-up into Q3 for the holiday selling season depletes cash. Unlike a B2B business, revenues translate to cash fairly quickly: consumers pay for their purchases in cash/card so there are no material Accounts Receivable. (chart viewer)

Speaking of Inventory on the Balance Sheet, we see the seasonality there, too. Inventory YoY increases as the company has more stores, but comparing Q3 to Q4, we can see the build-up and draw-down over Q3 and Q4. (chart viewer)

Since Inventory levels are related to sales, we can see the seasonality when we compare Inventory to Sales using the Days Sales Outstanding metric. We see the distinctive build-up into Q3 and then drop-down in Q4. Adding a 4-quarter moving average shows us that the company has gotten more efficient recently as managing inventory. (chart viewer)

Since ULTA is building up inventory into the holiday shopping season, we would expect that we can see a seasonable increase in Accounts Payable, as vendors ship product into Inventory but are not paid fully right away. The spikes then drop by Q4 end, as bills get paid. (chart viewer)

Similar to the Days Sales Outstanding in relation to Inventory, we can see the seasonality in Days Payables Outstanding in relation to Ulta’s payables. (chart viewer)

Our final highlight is Property, Plant and Equipment (PP&E) on the Balance Sheet: it also exhibits seasonality. In Ulta’s case, this line item grows through capital expenditures, mostly for new stores. We can see that how the balance of the account flatlines in sync with the selling season: the company opens very few stores during the main selling season, and then ramps back up into the new year. (chart viewer)

If you are interested in how the Sentieo platform can make your research process more efficient, please get in touch.

What Equity Analysts Need To Do About “606”

One of the most substantial recent changes in public company accounting is ASC 606: Revenues from Contracts with Customers. The changes affect a wide range of public filers, from SaaS companies to real estate managers, to fast food franchisors. This post will focus on what analysts can do to efficiently see what has changed in their coverage universe. For the accounting enthusiasts who want to know more about the changes themselves, we recommend KPMG’s 1,100-page implementation guide.

As the implementations have been rolling in the filers’ SEC filings, we find that two Doc Searches can help analysts find the adjustments provided by the companies.

For income statement changes, we use IN:TABLE search for revenue within 200 words of “606.” In Sentieo, analysts can search specific company documents, docs from several companies (tickers entered manually or in a saved watchlist), or general search (which can be modified by factors such as market cap, headquarters location, specific filing forms, sector, and many others).

For balance sheet changes, we use IN:TABLE search for equity, within 200 words of 606.

Using these searches enabled us to find what we need, in a fraction of the time that older search methods require. Here are some of our findings.

Intuit (INTU), parent of QuickBooks and TurboTax, went from a loss to almost break-even in its third quarter under the new standard.

SaaS company AutoDesk (ADSK): we see that both revenues and the closely watched ARR numbers are affected.

Dunkin’ Brands (DNKN), franchisor of Dunkin and Baskin Robbins, analyzed the applicability of 606 to its revenue streams (franchise fees, advertising fund fees, products, rents), and Sentieo provides a detailed breakdown.

Our balance sheet search mentioned above picked up some notable changes, too.

Commercial real estate broker and manager Jones Lang LaSalle (JLL) saw several changes in its balance sheet, notably the creation of several new line items related to the adoption of 606.

SVB Financial (SIVB), parent of Silicon Valley Bank, also reported major changes in its accounts receivable and its deferred revenues on its balance sheet.

Finally, telecom Sprint Corporation (S) saw balance sheet adjustments in a few categories, including the addition of $1.2 billion of customer contract acquisitions on the Assets side, and a $1.3 billion swing from negative accumulated earnings to positive.

If you’d like to learn more about how using Sentieo can help your process, get in touch.

Introducing Sentieo Capture: Clip and Save Document Content into the Sentieo Notebook

We recently introduced an enhancement to our document markup functionality: Sentieo Capture.

Within documents in Sentieo, you’ve had the ability to highlight, annotate, and tag your colleagues within important passages of text. Oftentimes, you’ve also come across important graphics such as charts or tables that you may have wanted to collect and save.

With Sentieo Capture, you can now:

  • Capture any portion of a document (such as a capex breakout slide from a company’s investor presentation).
  • Mark up the capture with shapes, arrows, and lines of text.
  • Save the captured area as an image (along with the source document) directly into your Notebook.
  • As with highlights, you can also add label(s) and annotations to your captures.


Why Should I Use Sentieo Capture?

While performing a deep dive analysis on a company, investment professionals are likely to face information overload, which can make it challenging to effectively manage all the information being consumed. Ultimately, effectively managing information and data becomes one of the key skills of a successful investment professional:

  • How do you collect information snippets from the documents you are reading, and then create a summary report?
  • How do you record the link (URL) to remember the source of the document along with your information snippet?
  • How do you organize the information you’ve collected so that you can easily retrieve it at a later time?
  • When collaborating with others on your team, how do you efficiently share and update this information?

You have probably used various tools to tackle these questions, including the Windows Snipping Tool, MS Outlook, MS Word, MS OneNote and Evernote. These are all great tools and have their own particular strengths, but they do not solve the a major problem in the investment professionals’ information capture flow: having to source, organize, remember, and be able to retrieve your research.

At Sentieo, we are building features to replace the fragmented information capture workflow to become a one-stop solution for managing, sharing, and retrieving the information you’ve gathered on a company or topic. That way you can come up with a meaningful conclusion using all of the information you’ve gathered, and not just bits and pieces. In this post, we’ll nudge you into trying a slightly different approach when doing your company research in Sentieo.

 

How Do I Use It?

The Capture feature can be triggered via the photograph icon located in the upper-right corner of the document that you are viewing. There is no real setup required other than making sure that you have installed the Sentieo Chrome extension, which you will be prompted to do if it is not already installed.

To enable capture mode, simply click the “Capture” button on the toolbar while viewing any document within Document Search or your Notebook:

 

Begin your capture by selecting the area you would like to capture and clicking and dragging:

A new screen with your captured area will appear, allowing you to:

  1. Name your capture
  2. Mark up your capture with the annotation tools menu
  3. Copy to clipboard, e-mail out, or save the image to your computer
  4. Add a label or annotation to your capture
  5. Save or discard your capture

Where is this information being stored, and what can I do with it?

All of your bookmarks, highlights, annotations (and now captures) are also stored and searchable within your Sentieo Notebook. This also means that your information is available from any computer with Google Chrome and an internet connection.

Like highlights, all of your captures are automatically sent to your Notebook and populated with the source document title and filing date, any relevant company tickers, and any labels and annotations. This automatic tagging makes retrieving your highlights and captures a breeze in the future.

Additionally, you can share selected research with the rest of your team and people outside of Sentieo. You can also view what others have shared with you.

 

We hope that Sentieo Capture saves you more time and keeps your research more organized. Give highlighting and Capture a try; you won’t want to do your Sentieo research without it! Please message us via customer support chat, or email nauman@sentieo.com with any feedback on the functionality that you would like to see added to the new capture feature! Haven’t used Sentieo yet? Get a free trial.

Save Time Analyzing Off-Balance Sheet Commitments with Sentieo

Not all contractual obligations that result in cash outflows are listed in a company’s balance sheet. Looking purely at debt figures leaves an incomplete picture of future funding needs. In this blog post, we will find and visualize these liabilities in several examples across industries. While most analysts are very familiar with common items like operating leases and post-retirement healthcare liabilities, here are a few other items that we found.

We compiled these using the search term “Contractual Obligations” in Sentieo’s Document Search, and then built a Time Series chart using the Sentieo Time Series function to export from the 10-K or 10-Q. Lastly, we displayed the data in Sentieo Plotter.

Netflix: The online streaming hegemon has over $18 billion in future content liabilities. That’s a lot of binge-watching! The number has been growing steadily every quarter. Public chart viewer: http://snt.io/3YEv9pLtK

Nike: The dominant athletic footwear and apparel maker is known for its high-profile athlete endorsements. But these contracts do not come cheap; Nike’s 10-Ks show a growing off-balance sheet liability, now at over $10 billion. Public chart viewer: http://snt.io/aeEv9rCv9

Waste Management: The leader in waste management has over $3 bn (and growing) in environmental-related liabilities around the closure of garbage facilities at the end of their useful lives. Public chart viewer: http://snt.io/rcEv9sR9C

Vulcan Materials is a large supplier of aggregates (like sand and crushed stone) to the construction industry. We plotted the mineral royalties that they expect to owe to the property owners of the sites that they operate. Public chart view link: http://snt.io/fNEv9srx4

Valero, a large oil/petrochemical refiner, has over $30 bn in purchase commitments, mostly crude oil. The numbers have stayed fairly steady over the last 10 years. Public chart viewer: http://snt.io/EgEv9vTXr

Finally, our favorite find: Deckers Outdoor Corporation. This parent company of the UGG brand has purchase commitments for (you guessed it!) over $100 million dollars of sheepskin. This is a new disclosure; only two 10-Ks have it, so we are not showing a bar chart.

Sentieo Guide: Quick Tips For Starting a Hedge Fund

Chances are that you’ve thought about starting your own hedge fund. Perhaps you’ve felt an entrepreneurial pull, have an investment strategy in mind, or know a team of people with a similar goal.

Below, we’ve compiled a list of some of the best guides we’ve found online.

 

Resources:

Business Insider

Investment Law Group

Grant Thornton / Stonegate Capital Partners

Hedge Fund Law Blog

Investopedia

Vanity Fair

Mergers and Inquisitions

HFM Global

Hedge Fund Seeders

Hedge Fund Technology

Hedge Fund Law Firms

 

If you’d like to download Sentieo’s full, comprehensive guide that pulls together the best advice from all of these sources —  including legal advice, raising capital, office space, building a team, and more — download the full whitepaper.

Here are the topics that the guide covers:

  • Fund Structure
  • Raising Capital
  • Building a Team
  • Legal Considerations
  • International Considerations
  • Office Space
  • Technology Stack
  • Naming the Hedge Fund

 

“Pumpkin Spice” season starts earlier than ever, and is bigger than ever (at least on the internet)

Do you ever feel like Pumpkin Spice season seems to start earlier and earlier? Well, it’s true. It’s also bigger than ever — at least in Search.

Sentieo’s Mosaic pulled ten years of “pumpkin spice” search data, and we see some clear trends. Pumpkin spice season was typically off to a slow start, building up to a spike around Thanksgiving in late November (and we see the late November spikes on different days as Thanksgiving moves around).

We also see that over the last ten years, the pumpkin spice season has been starting earlier, and search volume in September/October has started to dwarf the previous peak around Thanksgiving. Finally, the pumpkin spice volume peaked in early September this year!

We are also seeing the term “pumpkin spice” appear across corporate communications: press releases, transcripts, and presentations. Using Sentieo’s thematic search, we looked for “pumpkin spice” across all corporate communications. We see a range of pumpkin spice products from Dunkin, Coca-Cola, IHOP, and even a pumpkin spice Baileys coffee liquor from Diageo.

And, of course, the 800-pound pumpkin spice gorilla is Starbucks: the company announced in a tweet that its legendary pumpkin spice latte is back on August 28th. Below, we used Sentieo’s Plotter to look at the frequency of pumpkin or PSL mentions from the Starbucks Twitter account.

Interactive chart

Locating Transaction Comparables in Fairness Opinions with Sentieo

A fairness opinion is a report, usually created by an investment bank, showing that a contemplated strategic transaction (such as a merger) is fair to the shareholders who are represented by the company’s Board of Directors. A fairness opinion will typically contain carefully researched and adjusted trading and transaction comparables.

Fairness opinions are used by buyside and sellside analysts to analyze transaction multiples and trends. They are used by activist investors who might feel that the target is undervalued and look to exercise their appraisal rights in court. In a similar fashion, securities litigation specialists might look at the documents while seeking compensation on behalf of shareholders. Finally, fairness opinions are looked at by corporate M&A/development professionals who monitor their own or adjacent industries.

Fairness opinions are usually rendered after the transaction has been announced, and they are filed with the SEC. However, a merger or an acquisition typically creates a deluge of filings from both parties, making locating this important document time-consuming, as there is no special SEC form for fairness opinions.

Sentieo users save time locating fairness opinions in seconds. Sentieo can also locate fairness opinions for companies that no longer trade. Here we show two examples: the pending deal between ConAgra Brands and Pinnacle Foods, and the acquisition of LinkedIn by Microsoft from a few years ago.

Pending deal between ConAgra Brands and Pinnacle Foods:

Acquisition of LinkedIn by Microsoft:

 

 

 

Memphis Research Finds A Financial Research Platform It Can Trust

About The Customer:

Memphis Research in Memphis, TN

Using Sentieo Since 2016

Memphis Research offers investment research, portfolio management, and consulting services for the hedge fund industry. Chad Gilliland (President) and Will Frazier (VP/Director) started the firm together in 2011 after working together at a hedge fund for some time.

 

The Challenge

Before Sentieo, the Memphis Research team had tried many financial research platforms, including Capital IQ and Bloomberg. All had fallen short of their expectations in a number of ways. They had un-intuitive user interfaces, limited mobile access, and were overpriced — to name a few shortcomings.

 

The Solution and Results

The team came across Sentieo and started a free trial. They immediately saw their fundamental research process improve:

“We feel like the Sentieo team understands what we do better than other platforms do. You are analysts and you think the way that we do. You know how to design the interface, and what you put into the product is not just random. You’ve included the pertinent details that an investment analyst wants to see. It makes a huge difference that the platform is truly built for analysts, by analysts.”

 

Document Search, Redlining, Watchlist Alerts, and News Stream

The Memphis team likes to run very specific keyword searches using Sentieo’s Document Search. They are able to narrow their searches down by document type, down to the document section (ie. “Risk Factors”). One popular use case for them is searching for disingenuous language and other signifiers within call transcripts.

The team also uses the Document Search redlining tool, which allows them to hone in on new document language or accounting numbers that have changed across quarters or over years.

Will and Chad also “follow” tickers in Sentieo by creating Watchlists of the companies they want to track. This allows them to receive immediate updates to their email inbox whenever new filings or financial statements come out for those companies. This is especially helpful to them during earnings season, when time is of the essence.

The team also keeps up with companies using the Sentieo News Stream, which is a feed of the latest social media tweets and articles about the companies they track.

 

 

 

An Equity Data Terminal They Can Trust

Will spends most of his time in the Sentieo Equity Data Terminal. He really loves the EDT’s company summary page, which lists a company’s consensus estimates, valuation and price target, major holders, and much more:

“In the EDT, I can quickly understand the nuts and bolts of a company. I have more confidence doing my research in Sentieo because I trust the data more than I trust the numbers in other systems.”

Will also extracts tables from documents into Excel, and compares them over time using Sentieo’s TableX suite of tools.

 

Staying Organized With The Notebook

Chad uses the Notebook (Sentieo’s research management system) to store his own notes and annotations by ticker, and to search through them as needed.

 

Mobile App For Access Anywhere, Anytime

Chad and Will frequently travel to trade shows, and they use the Sentieo mobile and tablet apps to keep working on-the-go. With Sentieo, they are able to quickly pull up financials and estimates at their fingertips, instead of printing and taking physical 10Ks and 10Qs with them. When listening to management calls, they are able to quickly pull up the expectations for a ticker on their mobile, and compare them to what’s being discussed on the spot. Chad also heavily uses the Sentieo app for the iPad tablet.

 

Conclusion

Will and Chad explained that Sentieo has revolutionized their fundamental research flow and saved them all the time and frustration they felt when using previous tools:

“We definitely positively endorse Sentieo. It’s an intuitive platform for built for the fundamental equity analyst, and helps us filter out the noise and get down to the fundamentals.”