CEO Speak

Do you watch financial TV? In small doses it's quite entertaining…especially when I am not on. But as someone who has presented such shows, let me give you some insight. I thought I would translate some of the things companies say, and what they really mean.

CEO: "Profits are up"
Translation: Profit is opinion, but cash is fact. Our profits are up even though we have less cash in the bank because:

1. we sold some of our 'crown jewel' assets as a one off. So the profit rise is a one-off exceptional item not the start of a trend. And those assets we sold, we'll need those in the future - and so suffer later.
2. Actually, when we said we sold those assets, it wasn't for cash. It was a barter arrangement and ummm…so our cash balance isn't improved…but hey, we can still call it profit because we put a 'notional value' in the accounts.

CEO: "Prospects are good"
Translation: We are not telling you about the contingent liabilities; the lawsuits and the pension provisions. We can lean on the accountant to say it is not too bad and so our figures don't look too bad, until the proverbial hits the fan that is. But hey, I'll have left by then.

CEO: "I have every confidence in the company"
Translation: That damn headhunter still hasn't agreed my golden handshake at the next job.

CEO: "We have increased profits from increased revenue growth."
Translation: You might think sales are growing and this is adding to profits, especially with wider profits margins. That would get your vote. But I am afraid I am tricking you. We are counting money that is expected but not in hand. That allows us to show greater revenues and profits. Guess what? Sometimes we think there is little chance of getting that money. Bristol-Myers Squibb overstated $2.5 billion in revenues and $900 million in earnings between 1999 and 2001 by giving incentives to move product before the end of its quarters.

CEO: "We have increased market share"
Translation: Sounds good doesn't it. Actually this is achieved from a lower profit margin and that means price-cutting to increase volume. That can be fine in the short-term, but longer term I do not rate those earnings as necessarily high quality.

CEO: "Our cost-cutting programme means our profits are up"
Translation: Cost cutting can be a short-term benefit before longer term profitability is hit. Imagine for instance companies cutting on research and development. This years earnings go up, but in five years you pay the real price for potentially under-investing.

CEO: "People selling our stock are midguided"
Translation: In April 2000, Enron CEO called hedge fund manager Richard Grubman an 'a-hole' during a conference call with analysts and investors. Less than eight months later, the company was filing for bankruptcy, costing investors billions.

CEO: "Don't worry about the footnotes"
Translation: Heck that's where I have hidden everything.

CEO:"If you ignore the one-offs it looks very healthy"
Translation: Yeah, these one-off expenses come in every year, they're not so one off. Cendant, Kodak, Edison International, HCA, Weyerhauser. Each of these companies took a special charge/gain in each of the 20 quarters between 1998 and 2002.

CEO: "We're sorry to lose him as a director, but he'll still be a consultant"
Translation: Yes, a very lucrative consulting contract indeed and I hope to get one when I leave…we're trying to make it a tradition in the board room.

CEO: "The director did well and so we feel the perks are sound practice"
Translation: Damn you're good, no one hardly ever notices the non-cash perks such as flights on the corporate jet. Of course that doesn't mean we run the company like a personal bank account…much.

Value-Growth

On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: Vedanta (first time ever on my radar), Rolls-Royce (still, but short-term sell off likely), BAe Systems, Scottish & Southern Energy (new).

Remember I am targeting about 20-20% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have Burren, Tullow, Vedanta, St Modwen, Virgin Mobile.

Crazy Small Stock

These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: Anglesey Mining, Volex, Telspec, Timestrip.

Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.

Spreadbetters

Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:

• Oil: Down
• Copper: Lower
• Gold: Down
• £/$: Mixed
• Dow: Mixed
• FTSE 100: Mixed to possibly lower
• Soyabean Oil: Mixed