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Zachary Karabell’s Guidance on Guidance

In a world filled with lots of unknowns and with so many companies reluctant to dole out investor guidance, how can you make sense of the markets? On CNBC’s Closing Bell, Zachary Karabell tells Dylan Ratigan how to navigate the uncharted waters.

Perhaps contrary to popular belief, Karabell believes that this is a good thing for many investors. He points out that many European companies don’t report quarter by quarter, instead they follow twice-yearly schedule. Meeting numbers every three months, he suggests, has created distortions in the marketplace and could also create lazy investors – who are satisfied with what companies are reporting instead of looking at what they are actually doing.

To get a sense of the stability and prospective growth for a company, Karabell suggests looking at the revenue streams for continuing operations. Ongoing sales, for example is a good measure to look at.

Banks are difficult for this kind of analysis. But as for businesses that lend themselves to easier analysis, Karabell suggests staple companies like Colgate are cut-and-dry “because,” he says, “you know what their input costs are, you know how many units they are selling... you basically know what the costs of running their businesses are.”

Karabell suggests that you think about what is most transparent, as far as business models.

He also warns caution when looking at resource or commodity consumption: “The problem is that all those numbers are backward looking, so they don’t tell you a lot about future trends. You have always got to juxtapose big-picture macro-data and think about the context a business is operating in.”

Karabell also sees the valuation debate as an interesting one. It is misleading because instead of looking at what the lowest multiple should be, in reality they should be more concerned about the inflation environment. “You should only have a really low multiple in a very high inflation environment,” he says, “because that is when your current earnings are being degraded by future inflation... with companies giving less guidance, it should encourage investors to do their own due diligence.”


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