Last year, technology company Lucent was looking like a terrific stock, that is, if you looked at corporate press releases and news stories. Increasing profits, increasing margins–the picture painted was rosy.
But investors who bothered to examine the company’s filings with the Securities and Exchange Commission saw a different picture. They saw skyrocketing inventories and accounts receivables–bad news for a company whose products become obsolete quickly.
Yet many people didn’t pick up on these fundamental indicators, and the stock’s price soared, trading in the $50s. Months later, the effects of those indicators are being felt and Lucent’s price has dropped, closing Monday at $10.46.
All investors can easily access and peruse SEC documents, yet not enough do.
“We see a lot of people who use company press releases as a proxy and don’t see the difference,” says Bill Mann, senior analyst at the Motley Fool. “It can’t be stated enough that with company filings, in some ways, [companies] are able to massage things a little bit. I can’t personally imagine making an investment decision without SEC documents, and EDGAR is the best way to get them.”
EDGAR, which stands for electronic data gathering, analysis and retrieval database, is the SEC repository for all required documents. The SEC requires all public companies to file registration statements, periodic reports and other forms through EDGAR. Exceptions are foreign companies (though many file voluntarily) and companies with assets of less than $10 million and fewer than 50 shareholders (this is just one of many reasons why it’s dangerous to invest in very small companies.)
EDGAR is sort of like exercise: people might know they should use it, but they don’t. Why? Chalk it up to lazy habits. But some of investors’ reluctance is justified: SEC documents are not exactly fascinating reading. And if you’re ever tried to hunt for a specific piece of information on an EDGAR site, you know how frustrating it can be.
But EDGAR is an essential pit stop for anyone doing research on a company. And over the past year, new Web sites and enhancements at older ones have made search, retrieving and downloading SEC documents a lot easier.
What you’ll find is a treasure trove of information, with biographies of management, current announcements, risk factors, the impact of accounting changes, any legal challenges the company is facing, insider buying and selling of the company stock.
What’s more, SEC information has to be presented and described in a carefully proscribed way, without the spin that a company might put on such information or actions.
Some documents to be on the lookout for:
10-K. This is the annual report without the fancy photography, art direction and carefully constructed copy.
10-Q. Ditto, except this is the quarterly.
8-K. Significant events, such as change of ownership, bankruptcy, directors departing, a change in outside auditors. All could move the stock’s price.
S-1. This contains information about initial public offerings, such as the prospectus, which has a summary of the business; how the company wants to use the cash it will raise in the offering; risk factors; an assessment of the competition; detailed biographies of management; and financial statements.
For a complete description of SEC forms, go to Disclosure-Investor.com and click on SEC Filings Guide on the home page. For a comprehensive tutorial on unfamiliar terms and forms found in SEC documents, visit Edgar-Online’s SECrets, at www.edgar-online.com/secrets. You’ll find everything you’ve ever wanted to know about warrants, tracking stock, ADRs, accredited investors, phantom stock, overallotment options and tons more.
But though we are advocating you go straight to the source (SEC documents), we are not advocating that you get these documents straight from the source (the SEC). That’s because the SEC site (www.sec.gov/edgar.shtml ) is not the easiest to navigate. Instead, you can search the EDGAR database on other free sites.
If you’ve never looked at an SEC document before, you might want to wade in slowly by accessing the EDGAR database from popular financial megasites such as The Motley Fool (www.fool.com), Quicken.com, MoneyCentral.com (www.investor.com), Yahoo!Finance.com, or Hoovers.com. All link to EDGAR filings.
But the specialized sites offer the most features and search capabilities. FreeEDGAR (www.freeedgar.com) is one of most popular and perhaps best of the free EDGAR sites. Its search form, found on the home page, is a snap to use.
Enter the ticker symbol (or type in company name after choosing that option) and after hitting “search,” you’ll find the company in the listings by clicking “View Filings.”
The hits are sorted by date, but you can set it up to sort by form type. You can also import documents into an Excel spreadsheet. Load them directly in the window or save them to a disk or your hard drive. To get the latest filings, click on “Today’s Filings” on the home page for documents sorted by time. You can also sort them by company name
FreeEdgar allows you to register to receive alerts on up to five companies, so that you’ll know whenever a company on your watch list files a document with the SEC. If you want alerts on more than five companies, you need to pay for Edgar Online’s premium service.
Insider Trader.com mines the EDGAR forms on insider buying and selling to generate news about this activity. Of course, what those in the know are buying and selling is just one part of the picture of any stock, but if you’re particularly interested in this indicator, InsiderTrader is your site.
Despite its name, 10K Wizard (www.10kwizard.com) lets you easily search for all kinds of EDGAR documents. This site makes it a breeze to search for several different items in a single search. So say you are interested in the inventory levels of a retailer for the month of April, if you know the filing you’re interested in, you can add that as well.
EDGARScan.com, a site from the accounting firm PriceWaterhouseCoopers, slices and dices SEC documents in some interesting ways. The core of this system is that key financial indicators are taken out and arranged in a “hypertextural table.” Click on any number — be it receivables, current liabilities, etc. — and you’ll be linked to the section in the underlying SEC document where the number comes from.
The Benchmarking Assistant is a Java tool that presents the information in a graphical way (you choose: pie chart, bar graph, etc.) letting you choose to display up to eight years of data.
