Sources of special insight into fundamentals

Long before social media reshaped attitudes about publicly sharing personal information, American businesses publicized significant amounts of their private financial data through normal business activities and in court cases. Savvy analysts have used available public records to understand details about business conditions and refine their projections of future performance potential.

Bankruptcy court filings and public bidding documents are just 2 of the many sources that can yield useful investment insights and supplement standard financial reports. Here's an overview of some of the sources, methods, and applications for these kinds of data.

Using the public's right to know for your research

Local, state, and federal entities purchase a wide range of products and services from private businesses. Since government entities are often required to document their decisions objectively for public review, they may collect detailed information from their potential suppliers. This information can include not only product pricing and performance specifications, but also background reports on financial strength and capital resources. This raw data about potential vendors is typically retained by the government agency and, in many cases, may be filed for public review and Internet dissemination.

In some cases, the financial information may simply mirror the corporation's annual reports to stockholders. But in many cases, bidding rules may call for segment performance data and detailed cost breakdowns not otherwise readily available. Here are some of the most common areas for detailed financial reporting.

  • Public pension plans contract with banks and insurance companies for retirement plan administration, investment management, and asset custody. When these plans wish to consider new business deals, they typically issue requests for proposal (RFP) or requests for qualification (RFQ) that describe the product specifications and vendor financial standards that set the context for actual bids. These RFP and RFQ responses normally become part of the record for the search. In some places, all potential vendors' responses are made available for public inspection; in others, only those of successful or winning bidders.
  • Outsourcing deals cover a wide range of government functions, from public hospitals and jails to computer services and motor vehicle fleets. Companies that provide these services may, like financial services firms, provide extensive financial documentation through an RFP or RFQ process.
  • Privatizations, although nonrecurring events, involve relatively large sums and thus may call for even more detailed disclosure. For example, the city of Philadelphia has issued an RFQ as its first step to selling its city-owned natural gas company, the Philadelphia Gas Works. Only those who could document their financial ability to purchase and operate the $600 million-per-year business at the RFQ stage of the process would later be allowed to submit actual bids for the gas company.

There are no general archives or repositories for governmental RFP and RFQ responses. However, companies that actively pursue public business opportunities often promote significant winning bids in press releases and reports filed in the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database. When you are aware of specific deals involving companies you are researching, you can contact the agencies that awarded the contracts to determine what information about the bidders might be available.

Public access to federal court records

In the popular imagination, lawyers often seem to pore over mounds of case paperwork to find relevant nuggets pertaining to their arguments. But in the federal court system today, most, if not all, case documents are stored online and accessible to anyone, as long as they register for a login ID and password. These may include financial records needed for bankruptcy court proceedings as well as financial statements filed as part of many civil cases such as lawsuits and regulatory enforcement actions.

The federal court system's Internet-accessible database for these documents is Public Access to Court Electronic Records (PACER). Information in the system is generally keyed to the specific court and city where the case is (or was) being heard and is updated daily. However, PACER also offers a case locator service that allows registered users to search for any court in which a particular company might be a plaintiff or a defendant, and provides information that would then lead you to the correct court database section.

Court proceedings can not only help you better understand the financial fundamentals of a company you may be researching, but also can provide insight to your target company's business partners. These records may also help you evaluate any mergers and acquisitions involving your target company. Keep in mind that PACER may point you to potentially valuable information, but you may need to contact a specific court clerk directly for some exhibits and reports.

Third-party resources

There are many firms that compile bankruptcy-related and bidding-related financial information. For examples, here are two widely known subscription services.

  • publishes newsletters and compiles substantial data about debtors and creditors involved in reorganization and liquidation proceedings.
  • FindRFP tracks the requests issued by federal, state, and local agencies.

Also keep in mind that state officials regulate many kinds of businesses and often require financial reports specific to their states and to the sectors they oversee. Widely regulated industries include banking, insurance, telecommunications, transportation, and utilities.

Remember, none of these resources can provide adequate fundamental insight by themselves. But they may give you important information to refine your basic analysis and perhaps give you an edge in developing a more effective investment portfolio.

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© 2017 by DST Systems, Inc. Reprinted with permission from DST Systems, Inc. The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.

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