The Fundamentals of Fundamentals

Hey everybody! This is an example of some analysis I gave to my Exotics Club Newsletter subscribers a few weeks ago, but I wanted to give you a taste! 

You know, here on these post I think we tend to do a lot of high-level analysis. 

We talk about market trends. We talk about the overall direction of things. Sometimes we dig into a chart but usually it’s in a 5,000-foot view sort of way.

And honestly I think that’s great.

Truthfully, I think that’s usually the most valuable information I can give you, since there’s no way I can know what you’re looking at or give you detailed information on every stock (I’m only human! I think. At least that’s what my programming tells me!) 

(Hey look! It’s a Rob-Bot!) 

Anyway, i think that is all great stuff.

But what do you do when you’ve really zeroed in on a particular company you want to make a trade on? 

If there’s a company you think is going to go under, or a company you believe is about to boom, how do you tell what direction it might head?

I thought we could spend a few minutes talking about that, because right now, there are opportunities to trade companies especially when we expect they’re going to suffer from this crisis. 

(As always, we’re never rooting for any company to suffer. But if they’re going to, anyway, there’s no reason we shouldn’t profit off of it — and then do good with our money!) 

So let’s take a look at Macy’s (NYSE: M)

(By the way, how awesome is it that they’re just “M.” Not MC. Not MAC. Just “M.”) 

In the interest of full disclosure, I shorted 600 shares of Macy’s. I’m pretty sure Macy’s is gonna declare bankruptcy and / or not be okay during all of this chaos. 

There’s just a blank Macy’s chart, no analysis, no fancy drawings, nothing.

Because right now, I’m not necessarily looking for chart patterns, I’m focused on fundamentals. 

(Of course chart patterns are also helpful and naturally you look at them, I’m just trying to focus on fundamental analysis here!) 

So if you go to Yahoo! Finance and click on “statistics” on any stock, it will bring up this page chock full of fundamentals. TradingView has a similar feature which even recommends whether a stock is a buy/sell/hold if you want that flavor in your fundamentals ice cream.

Now here there are a ton of statistics you can look at. But I honed in on two: 

First, Macy’s has a total of $685M cash on hand. But they have $7.48 billion in total debt.

Now, a lot of companies operate on debt these days, but that is still a really noticeable imbalance! 

Second, and more importantly, under “current ratio (mrq)” you see the ratio of a company’s total assets for the most recent interim period over their total current liabilities or debt over the same period.

In other words, how much money you have in the short term versus how much short term debt you have. 

And in Macy’s case, they have just $1.18 in the bank for every $1.00 they have in short term debt.

That’s not a good situation to be in.

They already weren’t in a good spot before all this chaos started. 

And now, we know they’re not going to have any revenue to speak of this quarter, and maybe not much next quarter too.

I don’t have anything against Macy’s. 

It just seems pretty obvious to me that there’s no way they survive this quarter unscathed without some sort of massive bailout package.

And the government is already spending so much money elsewhere that it’s hard to believe they’ll just bail out Macy’s in the process. 

So that’s just one of the ways you can dig in on a particular stock and learn more.

The fact is that analyzing companies individually isn’t always as helpful as analyzing trends, but there are times when it can be particularly profitable. 

Good luck out there, and like any great coach would say, work on those fundamentals!