friday march 28 th, 2014 lafayette college investment club
TRANSCRIPT
Friday March 28th, 2014
Lafayette College Investment ClubLafayette College Investment ClubLafayette College Investment ClubLafayette College Investment Club
Announcements• 1) The BAT Test
– April 5th, 2014 10:00 AM in Engineering Building Acopian - 223B– Register at www.takethebat.com
• 2) Mentor Program – Wednesday April, 2nd in TBD classroom– All are welcome announcements to follow via Email with instructions– Pizza and Soda provided
• 3) Trivia – I will ask a trivia question at the end of the meeting– Winner takes home - Investment Club Fleece
• 4) Board Positions Opened– We are graduating 5 spots– We had a mandatory meeting already but anyone is welcomed to run
• 5) Board Meetings still open on Mondays at 12:15 pm in Simon Lobby– We encourage all ideas and backgrounds
Meeting Agenda
• 1) Market Update – Ryan McCormick
• 2) Portfolio Update – Tim Simon
• 3) Educational Piece – Craig Scheuerle
• 4) CLOROX – Sell pitch by Angel Stoychev
3/28/2014
By: Ryan McCormick
Market Update
Fannie Mae / Freddie Mac
• Proposal comes 6 years after Gov. rescue
• New mortgage securities / lenders take initial losses
• Private entities can purchase Gov. guarantees
• Attempts to prevent careless lending
Employment Data
• National quit rate fell to 1.7% in January
• 1st drop in quits rate since March 2013
• Indicates economy slowed over the winter
• Quits rate is more important considering questionable unemployment data
No Quick Increase in Hiring
• Companies continue to increase spending
• Encouraged by an end to gridlock in D.C.
• CEOs do not project an increase in hiring
• Turmoil in Russia / Ukraine hurt hiring
• Global companies concerned with sales
Federal Reserve
• Policy makers debate how to communicate future path of interest rates
• Had promised to raise rates when U=6.5%
• Offer broad assurances, not specific number
• Want to consider wider range of indicators
• Could hurt Fed’s future credibility
Yellen Comments
• Yellen announced rates could rise 6 months after QE ends
• Rattled markets causing stock prices to fall
• Shows how sensitive markets are to the Fed
• Yellen has difficult challenge with guidance
Portfolio Update Both Prior and Post Spring Break
By: Tim Simon
Caterpillar INC: CAT
• 4.02%
• Up 15.63% In past 3 months
• Sales of construction equipment rose despite weather conditions
General Electric Co: GE
• 4.72%
• Down 1.1% in past 3 months
• $3 billions in bond sales
• Signed one year agreement with NYPA
UnitedHealth Group Inc: UNH
• 3.96%
• Up 6.72% last 3 months
• In Feb online bill payment grows to more than 50,000
Biggest Gainer – AKAM 24%
Biggest Loser – Baidu down 15%
Overall Portfolio
• Month over Month – We are roughly down -1.05% give or take a few basis points. The benchmark is down roughly -5.25%.
• YTD – We are up 30 basis points where the market is up 78 basis points.
• Our biggest concern is the 5% allocation into GILD which is down roughly 13% this month.
The Sell Side
By: Craig Scheuerle
I want to work for an investment bank…..
Main Components
Investment Banking
Sales and Trading
Private Wealth Management
• Individuals• Pension Funds• Insurance Companies• Asset Managers• Corporate Treasuries• Sovereign Wealth
Funds
• Corporations• Governments• Municipalities
Providers of CapitalInvestment
BankingInvestment
Banking
Investment Banks serve as intermediaries between providers and users of capital
Chinese Wall
Sales & Trading
Research
Users of capital
Public sidePrivate side
Strategic advisorySecurities underwriting
IB Overview
A B
AdvisoryCapital Markets
• Equity capital-raisingo Initial public offerings (IPOs)o Follow-on offeringso Equity-linked (convertible)
• Debt capital-raisingo High-grade or investment gradeo High-yieldo Syndicated loanso Tax-exempt
Overview of Investment Banking
• Mergers & Acquisitionso Buysideo Sellsideo Spin-offs / Splitoffs / Carve-outso Hostile defenseo Hostile takeovers / proxy fightso Joint Ventures
• Restructuring• Ratings
Execution
• Financial Analysis• Communication
o Management, Board of Directorso Internal Committees
• Identify Potential Investors• Negotiation / Structuring Transactions• Due Diligence• Documentation
Origination
• Client Relationship Management o Ongoing dialogue on financial
markets, industry developments, new products
o Long-term relationship as advisor to Senior Management and Boards
• Idea Generation and Problem Solvingo Strategic Alternativeso Capital Raisingo Optimizing Capital Structureo Risk Management, Dividend Policy
• Assessment Of Opportunities
What Does An Investment Banker Do?
Investment Banking Groups
Product
• M&A• Corporate Finance
Industry Coverage
• Consumer & Retail
• Healthcare• Technology• Media & Telecom• Industrials• Natural Resources• Real Estate
Capital Markets
• Equity Capital Markets
• Debt Capital Markets
• Tax-exempt• Leveraged
Finance• Securitized
Products
“Markets” “Technical”
Investment Banking Competitive Landscape
Bulge bracket
Boutique
Middle Market
Low HighCapabilities
Sell Clorox
By: Angel Stoychev
CLX Overview
• Produces laundry additives, bleach, stain fighters, color boosters, home-care products
• P/E = 20
• Beta = .4
• Dividend yield = 3.6%
• Last price = 87$
• Currently 2.5% of the portfolio
Over leverage
• Total Debt = 2.51B
• Total Cash = 341M
• Total Debt/Equity = 1,610
• Current Ratio = 1.27
• Interest Coverage Ratio = Interest Expense/EBIT= 20%
Balance Sheet
Assets Liabilities Stockholder Equity4,311,000 4,165,000 146,000
Net Tangible Assets = (1,586,000)
Bad Cash Flow Management
• Dividends Paid = 335M
• Cash Flow from Operating Activities = 775M
• Net Cash Flow Change = 32M
Stagnation
• Revenue increased at 1.2% annually
• EPS flat or declining in recent quarters
• 12-mo stock performance flat
Management, Insider transactions
• Economic profit = Earnings from continuing ops
+ Interest Expense
- Income tax expense
- Capital charge
• Insider closing out positions
– 8,000 shares sold in the last 24 weeks (2 weeks worth of daily volume)
Sell-side coverage
• UBS (Sell), Goldman Sachs (Sell), Credit Suisse (Underperform)…
Summary
• Over leverage + Stagnation = Lagger
• Replace with a company that will benefit from improvement in the economy