Are Gilead, Sirius, Netflix Buys? Check This Measure
Focusing on whether or not a company's quarterly earnings beat Wall Street's analyst consensus is a foolish game, said Baruch Lev, author of The End of Accounting. Investors are far better-served assessing the strategic, value-creating assets of the enterprise instead, he said.
"Focus on those assets, and measure the performance of those assets and how they are protected," said Lev. "That's the new way for both disclosure and investors."
Lev is the Philip Bardes Professor of Accounting and Finance at the NYU School of Business. He has authored over 100 research studies and five books, including Winning Investors Over.
Shares of Gilead Sciences (GILD) - Get Report , for example, fell over 10% in April after the pharmaceutical company posted earnings of $3.03 a share on $7.79 billion in revenue compared to analyst forecasts of $3.15 a share on $8.12 billion in revenue. Lev said the profit miss should not hold investors back from purchasing Gilead's stock, which is down 17% year to date, because of its deep pipeline and dominant market share in areas like HIV and hepatitis C drugs.
"They will overcome this miss," said Lev, adding that he loves the company's disclosure because it offers a "beautiful progression of its product pipeline."
Lev also likes the disclosure for Sirius XM (SIRI) - Get Report , which is down 3% year to date, as well at its stock. He said it holds a dominant market share in satellite radio and has a huge penetration in the new car market.
"The big question is growth and innovation because the new thing is WiFi in the car," said Lev. "They are going to be challenged by Apple (AAPL) - Get Report and Google (GOOGL) - Get Report despite their good performance and solid and tight cost control."
Apple and Google are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
Finally, Lev is a fan of Netflix's (NFLX) - Get Report service, but he has problems with its accounting. Shares of Netflix are down 17% year to date.
"They stopped giving the churn rate even after the SEC told them that they got investors used to getting it," said Lev. "They give comments about churn rate increases and decreases, they should just give the numbers."