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Company name Alcoa Inc.
Stock ticker AA
Live stock price [stckqut]AA[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Fair
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $1.05
Target stock price (averages with growth) $1.51
Target stock price (averages with no growth) $2
Target stock price (manual assumptions) $6.09

The following company description is from Google Finance: http://www.google.com/finance?q=aa

Alcoa Inc. (Alcoa) is engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its participation in technology, mining, refining, smelting, fabricating, and recycling. Alcoa’s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications. Alcoa is a global company operating in 31 countries. Alcoa’s operations consist of four worldwide reportable segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. On March 9, 2011, Alcoa completed an acquisition of the aerospace fastener business of TransDigm Group Inc.

 

Confident Investor comments: I realize that this a very popular company but I really do not think it is a good investment or very well run.  At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

 

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Company name Chipotle Mexican Grill, Inc.
Stock ticker CMG
Live stock price [stckqut]CMG[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $436.04
Target stock price (averages with growth) $610.21
Target stock price (averages with no growth) $430.45
Target stock price (manual assumptions) $445.05

The following company description is from Google Finance: http://www.google.com/finance?q=cmg

Chipotle Mexican Grill, Inc. and its subsidiaries (Chipotle) operate restaurants throughout the United States, as well as two restaurants in Toronto, Canada and two in London, England. As of December 31, 2011, Chipotle operated 1,230 restaurants, which includes one ShopHouse Southeast Asian Kitchen. The Company’s restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The Company manages its operations and restaurants based on six regions that all report into a single segment. As of December 31, 2011, the Company delivered ingredients and other supplies to its restaurants from 22 independently owned and operated regional distribution centers. Chipotle categorizes its restaurants as either end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other.

 

Confident Investor comments: I understand that at the time of this writing, Chipotle has taken a major reduction in price. This is why I am putting them on my Watch List. The market correction is likely too extreme. At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

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Company name Lakeland Industries, Inc.
Stock ticker LAKE
Live stock price [stckqut]LAKE[/stckqut]
Confident Investor Rating Poor

The following company description is from Google Finance: http://www.google.com/finance?q=lake

Lakeland Industries, Inc. (Lakeland) manufactures and sells a line of safety garments and accessories for the industrial protective clothing market. The Company’s products are sold to 1,000 safety and mill supply distributors in the United States. These distributors in turn supply end user industrial customers, such as integrated oil, chemical/petrochemical, utilities, automobile, steel, glass, construction, smelting, munition plants, janitorial, pharmaceutical, mortuaries and high technology electronics manufacturers, as well as scientific and medical laboratories. In addition, the Company supplies federal, state and local governmental agencies and departments, such as fire and police departments, airport crash rescue units, the Department of Defense, the Department of Homeland Security and the Centers for Disease Control.
Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock. As I have been repeating for the past couple weeks on this site, it is not possible to confidently invest in a company that is not currently profitable.

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Company name MB Financial, Inc.
Stock ticker MBFI
Live stock price [stckqut]MBFI[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $31.14
Target stock price (averages with growth) $44.18
Target stock price (averages with no growth) $41.37
Target stock price (manual assumptions) $20.4

The following company description is from Google Finance: http://www.google.com/finance?q=mbfi

MB Financial, Inc. (MB Financial), is a financial holding company. The Company’s primary market is the Chicago metropolitan area, in which MB Financial operates approximately 87 banking offices through its bank subsidiary, MB Financial Bank, N.A. (MB Financial Bank). Through MB Financial Bank, the Company offers a range of financial services primarily to small and middle market businesses and individuals in the markets that it serves. Its primary lines of business include commercial banking, retail banking and wealth management. As of December 31, 2011, the Company had total assets of $9.8 billion, deposits of $7.6 billion, stockholders’ equity of $1.4 billion, and $3.6 billion of client assets under administration in its Wealth Management Group.

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

 

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I recently started a thread of discussion regarding why I avoid companies that are unprofitable. The topic is fairly long so I am breaking it up into several posts. You can see the first posting here.

There are times that you will want to invest in unprofitable companies. However, this has to be done carefully and with a small portion of your investment portfolio, perhaps 10%. For this 10% of your portfolio, you can invest in more speculative offerings.  Some speculative offerings such as high-tech startups or biomedical startups typically have a fairly long run of being unprofitable as they work through their startup issues.

It is essential to analyze these types of companies carefully. You want to fully understand the business. You need to understand why they are still not able to create enough revenue to cover their expenses. Most importantly, you need to see that this gap is getting smaller rather than larger. You need to see that revenue is increasing and the costs of the company are being effectively controlled by excellent management.

Finally, you need to make sure that the future profitability event is from being well-run and not a Hail Mary pass that may not materialize. Counting on FDA approval of a drug when no other country has approved the drug, and it still has several rounds of testing to go, is not a safe strategy. Counting on a corporate takeover of an IT startup so that a large company can take advantage of “really cool technology” is not a safe strategy.

In other words, you need to be extremely cautious and very concerned about a company that is not profitable. It may have a significant path to profitability, but I suggest you are extremely diligent in watching its progress.

This is the last of my current series of posts on the subject of focusing on profitable companies to invest in rather than unprofitable ones. Personally, I stay away from all of the unprofitable companies as there are just too many good companies to watch. I don’t need the complication of trying to find that one company that is about to break out and be successful even though they were not successful in the past.