Corporations around the globe are constantly under pressure to meet sales expectations, which makes it very important when looking for investment opportunities to watch out for those companies that may be trying to pad their sales numbers in various ways, ie. Channel-stuffing (sending excess inventory to stores that will not be able to sell their products). AFG's Earnings Quality variable helps investors identify companies that are likely to miss earnings by studying the components of their current earnings. Professor Richard Sloan pioneered this research, and concluded that companies whose earnings consists of a disproportionally high percentage of accounting accrual rather than cash flow are likely to suffer earnings reversals in the future.

Often times heading into a new year, financial blogs and websites tend to provide lists of the best stocks to own in the coming year. We will take a slightly different approach and provide some companies to our readers that look overvalued and overall look like poor investment opportunities for 2012. While we spend a significant amount of time providing lists of attractive investment opportunities for our readers, we also understand that it is just as important for professional investors to be able to avoid potential torpedoes in the market as it is to discover the next investment opportunity poised to hit a home run. Today we will list 15 large cap companies from the S&P 500 that we deem to be potential torpedoes.

In an economically-themed speech last week in Kansas, President Obama revealed for all to see just how divorced he is from reality, and why his departure from the White House in 2013 is essential. It's not that we can't recover from another Obama term - that's the easy part - but that as a serious nation we can't have a president who possesses such unserious views. Call it a pride thing. Though Obama acknowledged up front the certain wonders of free markets, he only threw out the initial bouquet to decry those same unfettered markets. As he put it, "the free market has never been a free license to take whatever you can from whomever you can," as though those who participate in the marketplace on the way to great fortune somehow took from others in doing so. Really?

By now most readers are familiar with an exciting energy innovation called hydraulic fracturing, or the shortened word used to describe it, “fracking.” The energy extraction technique has led to major natural gas discoveries stateside, not to mention petroleum finds that have many Americans confident about easy, domestic oil access as far as the eye can see. About energy exploration, it should be said up front that this column in no way objects to it occurring anywhere and everywhere. And while all energy subsidies – brown and green – should be abolished with great speed, to the extent that private investment exists to support the sourcing of energy, the federal government should get out of the way. All that said, it says here that the excitement underlying fracking is overdone. Though all technological advances are something to embrace, for individuals to be exuberant about fracking amid a world awash in oil is the equivalent of Americans dancing in the streets over new techniques discovered for the easy manufacture of t-shirts.

In business school in the late '90s, like just about everyone else in my class I attended a speech given by Morgan Stanley's then CEO. Thanks to a strong dollar and relatively low taxes at the time, Wall Street was booming and Morgan Stanley was seen by most as one of the premiere jobs for an MBA student to secure. Of note, the Morgan Stanley head stressed that as seemingly everyone desired San Francisco as a place to work, that better hiring options existed in other locales. In particular, so desperate was Morgan Stanley for India hires that he told anyone interested to approach him after his presentation. The latter anecdote is notable considering all the talk within the commentariat - including articles written for RealClearMarkets - about California's certain decline. Supposedly high taxes, claustrophobic regulations and nosebleed spending are authoring its imminent demise; one that began with great speed several years ago.

For the past four years The Applied Finance Group has used our Economic Margin methodology to evaluate the best and worst wealth creating CEO's in the S&P500. The companies that hit the top of this list are considered "best of class." However, it is also important to consider the expectations that are priced into each of these companies and their overall valuation attractiveness which are not part of this analysis. Apple Inc.'s visionary CEO Steve Jobs created extraordinary value for shareholders-but four lesser-known CEOs were even more valuable over the past three years. Express Scripts CEO George Paz earned the title of Most Valuable CEO, followed by Exelon CEO John W. Rowe. Priceline.com CEO Jeffery H. Boyd was #3, Varian Medical Systems CEO Timothy E. Guertin was #4 and Apple CEO Steve Jobs ranked #5. This is the fourth year Chief Executive magazine and ChiefExecutive.net have published its Wealth Creation Index, ranking the performance of S&P 500 CEOs. Created in collaboration with Great Numbers! and the Applied Finance Group, the ranking is based on four factors: (1) How good a company was at making real money (operating cash flow in excess of its risk-adjusted cost of capital), (2) Its prospects for continuing to make real money, (3) Its wise use of capital, and (4) How highly the market values the company's assets.

The 'lost generation' angst of Generation Zero and the Occupy Wall Street movement that somewhat animates it is merely a repeat of the slacker GenX movement of the early '90s, and surely other economically downcast periods for young adults before then. Each time we hear that today's angry generation will underperform that of the parents, and each time this is a nonsensical illusion wrought by bad economic policy.

A flat tax would be a huge improvement on the present abomination that is the tax code, but it still penalizes work, may raise too much revenue, plus it institutionalizes the impoverishing notion that the rich should pay the most to the federal government. A consumption tax would end the work penalty, it would encourage the savings that author all economic advancement, plus it would be the one way for the citizenry to limit what the government collects, thus making it more difficult for Treasury to raise huge sums of money that Congress ultimately uses to wreak economic havoc.

More than once over the years this column has sought to expose the absurdity of Gross Domestic Product (GDP) calculations. On their face they presume that the U.S. is an isolated economic island, rather than an integrated aspect of a global economic whole. Nobel Laureate Robert Mundell long ago observed that the only closed economy is the world economy, and as such, U.S. production (think the globalized manufacture of Apple's iPad, or Boeing's 787 Dreamliner) is a function of ties to economic activity occurring around the world. GDP presumes a country alone, and worse uniformity; the latter certainly belied by the profound difference between New York City and its neighbor in New Jersey, Newark. Worse, what often drives GDP up is far from something that would be considered economically stimulative. Indeed, government measures of inflation are notoriously slow to pick up on the horrors of dollar devaluation, but when devaluation leads to higher prices, GDP increases. Government spending, for the latter having no resources that it hasn't first extracted from the private sector also boosts GDP, and then if imports to the U.S. decline (a flashing negative economic signal if there ever was one), this actually registers as growth in the calculation of this most worthless of measures of our economic health.