Tips From the Pros: Researching Stocks

Look to the annual report for valuable tidbits, says fund manager.

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A great research tool for stock investors, says Bob Auer, manager of the Auer Growth fund, is a company's annual report, which typically comes out in April. Particularly valuable, says Auer, is the company president's letter, which is usually found at the beginning of the report:

"Sometimes it gives you a glimpse of what's in store for the coming year, and many times it reveals a tidbit that has never before been released and isn't in the news," says Auer, whose Indianapolis-based fund invests in companies of all sizes. "It may fill you in on developments that have happened since December 31. For example, the company may reveal that it's been working on a new contract or product. We think it's a neat thing to read."

Here's an interesting tidbit Auer found while perusing the 2007 annual report of one of the fund's investments, Cubist Pharmaceuticals: The company revealed a new sales forecast of $750 million for its flagship drug, Cubicin.