Guest Blogger Vince Farrell marvelled at Goldman Sachs’ market-moving ability. Who did Farrell say Goldman “unloaded” on?

Yesterday they unloaded on Citi and GM and those stocks got hit. Goldman effect?

As I noted earlier, my strategy has so far been not to be long Citigroup. It gets low marks for earnings quality, price momentum and free cash flow in the models I follow. As for GM, it doesn’t even qualify to run through the models.

In the blog post, “Options Action: Make $$$ on Financials”, Stacey Gilbert talks up a strategy for

Gilbert says there is a strategy for investors who are long stock, naming Citigroup (C - Annual Report) specifically.

My strategy has so far been not to be long Citigroup. It gets low marks for earnings quality, price momentum and free cash flow in the models I follow.

In the CNBC Stock Blog, “A Big Buy On Brazil,” what was Tom Del Zoppo’s advice?

Del Zoppo recommends that investors sell Citigroup (C - Annual Report) and buy Brazilian oil producer Petrobras (PBR).

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

On May 9’s “Stop Trading”, Jim Cramer warned NOT to buy certain stocks. Which one did he call a “travesty”?

Citigroup (C - Annual Report), AIG (AIG - Annual Report) and Circuit City (CC). Three of the worst companies America has to offer, at least that’s how Jim Cramer sees it.

But it’s AIG that takes the cake. The world’s biggest insurer has become a “travesty,” according to Cramer.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

This article was originally published at RealMoney on October 4, 2007.

Less than a month after topping Fortune Magazine’s list of the 100 fastest-growing companies, Nutri-System, Inc.’s (NTRI) growth rate came to a screeching halt. The company announced yesterday that while revenue growth will top 20% in the third quarter it will be well below expectations, and earnings per share are expected to be between $0.62 and $0.66 – barely budging from $0.63 last year and well below the $0.82 consensus. With the shares selling off more than 20% in after-hours trading, investors have to figure out whether this stock’s weight loss is permanent or whether, like many of its customers, it could be on a yo-yo.

To start out with, I’m going to lay my cards on the table and admit I didn’t see this coming. I thought investors were being a bit irrational when they sold the shares following a strong earnings report and slightly weak guidance (that has now been revised to really weak.) So when considering anything I say about the name, remember that I have been dead wrong about it to date.

That said, with the after hours sell-off the stock is now trading at just over 10x the trailing 12-month free cash flow. From that multiple, I feel like I can earn an adequate return even if the company doesn’t grow – all it needs to do is maintain its current levels of cash flow.

The problem is, the aforementioned growth has taken the cash flow off the charts. For example, if the growth had been steady I might feel that free cash flow could retract to the $60 million the company posted in 2006, rather than the $108 million it gained in the last half of that year and the first half of 2007. While that would be a sharp cutback, the free cash flow yield would still offer support from which I would hope for growth.

But what if cash flow dropped to 2005 levels? It is surely possible that Nutri-system, a company more than 30 years old, could drop back to the levels seen two years ago, is it not? Well, if it is possible it would be a big problem. In 2005 Nutri-System’s free cash flow was only $12 million. Next to nothing. And I don’t even want to think about 2004.

So, from my point of view Nutri-System doesn’t qualify as a sound investment opportunity right now, despite an apparently cheap valuation. It might, however, be worth a trade.

One guy who did get this story right was Citigroup’s Gregory Badishkanian, who warned last month that sales may suffer in the short term as dieters try out GlaxoSmithKline’s (GSK) new over the counter weight loss drug Alli. He also noted that the comparisons to last year’s third quarter are difficult as that is when Dan Marino joined the company as spokesman. And, of course, October is not known as the time to start a diet.

The tough comparisons are likely to continue, but Badishkanian doesn’t expect dieters to enjoy the digestive side-effects of taking Alli for very long. After we gorge ourselves this holiday season, we are likely to make the same New Year’s resolutions we have often made in the past. And in each of the last three years Nutri-System has enjoyed a strong rally from January through April.

Personally I feel like I would benefit more from the product than from the stock at this point. If the shares are still down in late December I may even attempt the seasonal trade, and by the time that is done there may be a little more clarity about the sustainability of free cash flow.

In any case, making the resolution play will require a good deal of resolve for this volatile stock.

I decided to take a look at what some of the largest companies by revenue are saying about their business.

All looks well at General Electric (GE - Annual Report).

The second quarter orders were a record, up 32%; we grew our backlog. We’ve got very strong global demand, up 21% in revenue. We continue our focus on margin expansion. Year-to-date we’re up 120 basis points; we’re up 70 basis points for the quarter. This is a big initiative inside the company, and one that we’re committed to….

Globalization and emerging markets, GE is very advantaged in these markets and these are just booming right now.

Infrastructure continues to be a real solid point for the company. Demographics as it pertains to both global growth and some of the action in GE Money is great. All of our focus on ecomagination, energy and investment/reinvestment is very solid.

If you look at what’s the same, we still see high liquidity in the marketplace. The U.S. consumer seems fine. Unemployment is at low levels, and we’re not seeing really any warning signs with the U.S. consumer….

On balance, we think we’re well-positioned in this environment. There’s no big surprises, and we feel like we’re in good shape as we look at the rest of the year.

(Excerpt from full GE conference call transcript)

Exxon Mobil (XOM - Annual Report) describes several reasons why investing in new projects can be risky, which helps explain why they haven’t invested as much as some would like (and why prices for oil are likely to remain high.)

Although increased volumes from the recent project start-ups in Russia, West Africa, and Qatar more than offset natural field decline, liquids production fell by 34,000 barrels per day, or 1% from the same quarter last year due to entitlement and OPEC quota effects in Africa….

ExxonMobile’s affiliate in Venezuela was not able to reach the agreement on the formation of a mixed enterprise and on June 27, 2007, the government took over our interest in the Serene rural project….

(Excerpt from full XOM conference call transcript)

And they didn’t even get to hurricanes, Iran, Iraq or terrorism. Makes you want to run out and drill an exploratory well, doesn’t it?

General Motors (GM) hopes to build a house of BRIC:

It was actually a very good quarter for other regions. Strong growth outside North America in the quarter, adjusted profitability of close to $700 million, $1.1 billion year-to-date. Revenue up 16%, share up 0.2%. I remind you our revenue does not include our business in China, as we carry it on the equity method so you would not see the growth in our business in China showing up in revenue. So this is really only on a consolidated basis.

Europe reported its best quarterly results since the second quarter of 1996, strong structural cost performance and favorable pricing. LAAM continues to leverage, it can only be termed explosive growth, reported the best quarter in ten years in both revenue and profitability. GMH reported a record second quarter adjusted net income with continued growth in China, India, and South Korea, as well as some improved performance in Australia….

Russia is a very fast-growing emerging market. 2.5 million units. It’s actually fast approaching one of the largest markets in Europe, actually, getting very close to France, Spain, Italy in terms of its size; and the U.K., as you can see. Our market share is up almost 4 points in Russia year-to-date.

Actually, we’re running behind in Brazil, we’re trailing in terms of market share in Brazil, but the driver of that is the market is up 50% in terms of its SAAR in the quarter. I would say the challenge in LAAM today is to keep up with the markets growth….

China, you can see the SAAR is up from 6.7 million to 8.3 million units. Our market share has not kept pace, so we’ve had some competitive pressures there, but nonetheless we’re still running pretty strong in China.

(Excerpt from full GM conference call transcript)

However, as if they needed any more challenges, they have subprime exposure that needs to be worked off.

ResCap lost over $900 million in the first quarter. We said that in the second quarter we expected that losses would narrow considerably and we expected better results. We did see that. Nonetheless, the $254 million is still a substantial challenge, it’s the largest business challenge for the GMAC management team in terms of restoring that business to where it needs to be. But it’s good to see the declining losses. We have sharply reduced our non-prime production, our non-prime exposure across warehouse lending, across some of our builder businesses. You saw run-off in the non-prime portfolio held for investment. We expect our run-off in the held for investment portfolio to be about $15 billion this year. So we’re basically reducing our exposure to non-prime and at the same time, we are seeing increased service fee income and lower structural costs.

So I would say the challenges continue here, but the first step in addressing the challenges is to stop deteriorating.

(Excerpt from full GM conference call transcript)

Citigroup (C - Annual Report) is also feeling the heat.

Net credit losses were up by $259 million, driven primarily by our global consumer business.

In consumer, key drivers are higher balances from organic portfolio growth and acquisitions; continued deterioration in the second mortgage portfolio; and the impact of the gray zone in Japan. In markets and banking, we continued to see a stable credit environment.

The third component is a $465 million net increase in the loan-loss reserve. There were two major drivers of this increase. First in the U.S. Cards business, the increase was driven by a change in the estimate of loan losses that are inherent in the portfolio. It is important to note that the underlying credit metrics have remained largely stable in our cards business. This reserve build reflects our focus on staying ahead of the visible credit trends, by considering as many factors as possible in establishing our reserves.

Second, in the international cards business, portfolio growth and seasoning and the impact of recent acquisitions resulted in higher reserve levels.

(Excerpt from full C conference call transcript)

Wal-Mart’s (WMT - Annual Report) customers are feeling the pinch.

Consumers today are pressed by a number of factors. Higher energy, higher gas prices and higher interest rates are all stretching their paychecks. Families with school-aged children are expected to spend more than $500 this year on back-to-school products. Our price campaign is designed to make a difference for families by saving them money where it counts most: on items like backpacks, pencils and socks. We’re encouraged by the response we’re seeing in back-to-school in August. 14 states have tax-free days during the start of this month. In addition, several states have delayed some school openings and we expect the trend we have seen with other seasons to continue. People are buying closer to the event.

As reported by other retailers, we’re experiencing similar trends in soft sales of home products driven by the slow down in housing. In addition, Wal-Mart’s softness in the home and apparel categories has been compounded by the difficulties we have had this past year and have shared with you. The result is that home and apparel remain soft through the second quarter. We’re starting to see some improvement in certain home categories this month and we are pleased so far with the sales results and customer response to the test of the New Home that we are piloting in several markets.

We continue to see pressure in all areas of apparel and continue to take pricing actions needed to sell through our inventory. We’re seeing some positive trends in sleepwear and men’s sports apparel. In the children’s areas, licensed apparel is picking up momentum and as I mentioned earlier on, we do expect our kid’s apparel categories to rebound this month.

(Excerpt from full WMT conference call transcript)

I guess it is not surprising that the top companies are seeing an outlook as mixed as that of the overall economy.

Disclosure: Author is long IShares MSCI Japan Index (EWJ) at time of publication.