Intel Corporation (INTC), Yahoo! Inc. (YHOO) & Google Inc (GOOG) Investors Beware: These Profits Are Fake

Accrual reality

The outlook for these companies is admittedly mixed. Only one thing is for certain: Next quarter, tax rates will rise when companies receive a tax credit for just one quarter of research and development, instead of five quarters of R&D. I expect profits to fall accordingly, sending unaware investors an unpleasant surprise when they notice a drop in profit margin (and probably share price).

Proponents of the efficient market theory would argue that the tax credit is already baked into the stock’s price. I disagree. Long-term investors who read and study company financials likely have noticed the tax provision, but unfortunately, the studious investor is a dying breed. Be diligent in your research, and find the source of company profits. Your portfolio will see a “real” difference.

This article was written by Joshua Sauer and edited by Chris Marasco. Chris Marasco is Head Editor of ADifferentAngle. Neither has a position in any stocks mentioned. The Motley Fool recommends Google and Intel. The Motley Fool owns shares of Google and Intel.

The article Investors Beware: These Profits Are Fake originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.