(New York)

There has been a lot of anger (and even legal action) about the big declines Lyft has seen since its IPO. The questions around publicly traded companies worth tens of billions of Dollars with annual losses of billions of Dollars are only growing more intense as Uber readies for its IPO. The big question is what investors should do about the stocks—stay away or buy in? TrimTabs Asset Management has some very salient thoughts on the issue. TrimTabs specializes in free cash flow oriented products and lent their expertise to this question. They conducted an in-depth study of how post-IPO companies with negative free cash flow, and negatively trending free cash flow, perform versus those with positive FCF. The results were stark, and in all instances showed major outperformance of FCF positive companies. For instance, over a 12-month horizon following IPO, $1 bn+ companies with positive FCF outperformed those with negative FCF by almost 16%, with the latter averaging losses of 6.41%.

FINSUM: This analysis from TrimTabs could not be more timely or insightful. We think it might be smart to stay away from Uber and Lyft until they at least have a clear path to profitability.

(San Francisco)

Want to forecast at where Apple’s stock price is headed? There is a good trick for doing so. The method is to look at the earnings and share price moves of Apple’s suppliers. About a third of suppliers report earnings before Apple does, and many of them derive a high portion of their sales from the company. Therefore, one can fairly well predict Apple’s earnings and likely moves. For instance, Apple has been on a tear since its earnings on Tuesday, and it would have been easy to see from the previously released supplier earnings.

FINSUM: This will not always work and some of the value is probably eaten up by algorithmic traders, but still, it seems a good predictive indicator.

(New York)

So headline economic data has been good lately. Yet the markets are leaning towards a bearish view on the economy and a dovish view on the Fed. With such confusion, it is hard to figure out what might happen. Therefore, we are going to focus on some alternative economic indicators and today we found an interesting one: lumber prices are slumping badly at the time of year they are supposed to be rising. Lumber prices usually rise in the spring as builders stock up for construction. However, poor weather and a lack of construction is badly hurting prices. In May 2018 prices were at $639 per thousand board feet, now they are just $334, or down about 50%! Mills are cutting back production as a response.

FINSUM: That is a pretty alarming price drop and another sign that the underlying health of the real estate market is not good.

(New York)

Vanguard funds have been performing well for years. That performance, mixed with ultra low costs is the reason they have thrived over the last decade and now contend for being the largest asset manager. However, there is a little known reason they have done so well—they employ a patented system for minimizing taxes in mutual funds. Vanguard uses a trading technique employing “heartbeat” trades which move stocks between ETFs and mutual funds in such a way that completely eliminates the taxability of their capital gains. Vanguard employs the strategy on 14 funds, and those have reported a combined $191 bn in gains while reporting zero to the IRS. Vanguard says the technique is entirely legal and has a patent on it through 2023.

FINSUM: This is an excellent competitive advantage and we thought advisors would like the view under the hood as to why Vanguard is thriving as one of the very best fund providers.

(New York)

Want to know an asset class that has better risk-adjusted returns than equities over the decades and still has quite good liquidity? Look no further than external sovereign bonds, or the bonds issued in foreign currencies, like the Republic of Argentina 7.5% bond maturing in 2026. The bonds also have a low correlation to stocks, which means having both of them in the portfolio overall should produce lower volatility. The asset class has flown largely unnoticed because of a lack of a benchmark or return history (until now) and the fact that there have been a handful of notable sovereign crises in recent years.

FINSUM: A lot of people shy away from this asset class, but it definitely has a place in the portfolio. The lack of correlation and the good risk-adjusted returns make it attractive.