side street team
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SIDE STREET TEAM. SIDE STREET TEAM Agenda. Strategy Portfolio Performance. SIDE STREET TEAM. STRATEGY. SIDE STREET TEAM Strategy. Identify Companies with: Significant growth potential over the next 12 to 18 months Opportunities to outperform peers - PowerPoint PPT PresentationTRANSCRIPT
SIDESIDE STREET TEAMSTREET TEAM
SIDE STREET TEAMSIDE STREET TEAMAgendaAgenda
StrategyStrategy
PortfolioPortfolio
PerformancePerformance
SIDESIDE STREET TEAMSTREET TEAM
STRATEGYSTRATEGY
SIDE STREET TEAMSIDE STREET TEAMStrategyStrategy
Identify Companies with:Identify Companies with: Significant growth potential over the next 12 to Significant growth potential over the next 12 to
18 months18 months
Opportunities to outperform peersOpportunities to outperform peers
Management teams with strong track recordsManagement teams with strong track records
Theme or catalyst that should drive Theme or catalyst that should drive
out-performanceout-performance
SIDE STREET TEAMSIDE STREET TEAMStrategyStrategy
Bottom-Up Approach Divide sectors among analystsDivide sectors among analysts
Narrow stock possibilities via appropriate Narrow stock possibilities via appropriate screensscreens
Gather ideas on upcoming market growth trendsGather ideas on upcoming market growth trends
Conduct individual research on respective Conduct individual research on respective sectorssectors
Research industry competitors and leadersResearch industry competitors and leaders
Present companies and team decides if the Present companies and team decides if the portfolio profile is metportfolio profile is met
Allocate capital among the selected companiesAllocate capital among the selected companies
SIDE STREET TEAMSIDE STREET TEAMStrategyStrategy
How we analyzed the stock: Reviewed SEC documentsReviewed SEC documents
Examined Bull & Bear reports from analystsExamined Bull & Bear reports from analysts
Evaluated sales, margins, and earnings driversEvaluated sales, margins, and earnings drivers
Researched source of growth over 12 to 18 Researched source of growth over 12 to 18 month periodmonth period
Compared potential stocks to industry peers Compared potential stocks to industry peers
Ensured companies were taking action to Ensured companies were taking action to capitalize on existing growth potentialcapitalize on existing growth potential
Analyzed market expectations to determine if Analyzed market expectations to determine if current valuations have failed to incorporate the current valuations have failed to incorporate the value of growth over the next 12 to 18 monthsvalue of growth over the next 12 to 18 months
SIDE STREET TEAMSIDE STREET TEAMStrategyStrategy
1.1. Increasing market Increasing market shareshare
2.2. Technological Technological innovationinnovation
3.3. Developing new Developing new marketsmarkets
4.4. Consistent performersConsistent performers
PPP, HAL, COL, MS, PPP, HAL, COL, MS, AMTD, STKL, PFE, AMTD, STKL, PFE, TXN, BSC, GDI, STR, TXN, BSC, GDI, STR, HIG, CHKHIG, CHK
DNA, PFE, HIG, BSC, DNA, PFE, HIG, BSC, GSK, UEIC, ENER, GSK, UEIC, ENER, ATR, BBBBATR, BBBB
DECK, KSWS, WFMI, DECK, KSWS, WFMI, ENER, AMTD, STR, ENER, AMTD, STR, PEIX, WAGPEIX, WAG
TAC, WB, WAG, CHD, TAC, WB, WAG, CHD, SIAL, ARJ, HIGSIAL, ARJ, HIG
THEME COMPANY
SIDE STREET TEAMSIDE STREET TEAM
PORTFOLIOPORTFOLIO
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Producer of specialty footwearProducer of specialty footwear
65% UGG - 30% Teva - 5% Simple65% UGG - 30% Teva - 5% Simple
ThemeTheme Aggressive product placement will increase Ugg and Teva Aggressive product placement will increase Ugg and Teva revenuerevenue
ValuationValuation 15X Forward PE and 2.6X Price to Book falls at shoe 15X Forward PE and 2.6X Price to Book falls at shoe industry’s mean valuationindustry’s mean valuation
FinancialsFinancials Historically consistent gross marginsHistorically consistent gross marginsNo debtNo debtUse strong cash flows to finance all venturesUse strong cash flows to finance all ventures
Deckers Outdoor Corp.Deckers Outdoor Corp.
Approach: Focus on companies with small but rapidly expanding market share
KSWS DECK ATR UEIC
Consumer Discretionary
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
Basic Materials
Approach: Focus on specialty chemical producers expanding into their high growth areas
ARJ SIAL
IndustryIndustry Global biocide producerGlobal biocide producer
40% Water - 26% Personal Care - 34% Wood Protection40% Water - 26% Personal Care - 34% Wood Protection
ThemeTheme Strong HTH Water demand will push overall revenue Strong HTH Water demand will push overall revenue growth above expectationsgrowth above expectations
ValuationValuation 20.8X Forward P/E and 2.2X Price to Book are 20.8X Forward P/E and 2.2X Price to Book are comparable to industry’s 18.2X and 2.7X comparable to industry’s 18.2X and 2.7X
FinancialsFinancials .62 Debt to Equity is low for its peer group.62 Debt to Equity is low for its peer groupStrong revenue growth since 2001 is comparable to Strong revenue growth since 2001 is comparable to peerspeers
Arch Chemicals Inc.Arch Chemicals Inc.
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Provides energy: coal-fired, gas-fired, hydrogen, and Provides energy: coal-fired, gas-fired, hydrogen, and renewable facilities. Ensures reliable, low-cost source of renewable facilities. Ensures reliable, low-cost source of powerpower
ThemeTheme Positioned to increase market share and continue long Positioned to increase market share and continue long term growthterm growth
ValuationValuation 16.9X Forward P/E and 2.2X Price to Book are 16.9X Forward P/E and 2.2X Price to Book are comparable to better than industry’s 19.1X and 3.6Xcomparable to better than industry’s 19.1X and 3.6X
FinancialsFinancials Growth rate shot way up over past two yearsGrowth rate shot way up over past two yearsCash flow rises and debt decreasesCash flow rises and debt decreases
Utilities
Approach: Diversify portfolio with low beta stocks in a small sector
Transalta Inc.
TAC STR
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Oil and natural gas exploration and productionOil and natural gas exploration and production
ThemeTheme Acquisitions fuel growth and hedges protect against Acquisitions fuel growth and hedges protect against downward volatility in commodity pricesdownward volatility in commodity prices
ValuationValuation 8.65X P/E and 1.53X Price to Book are low compared to 8.65X P/E and 1.53X Price to Book are low compared to industry’s 13.97X and 3.28Xindustry’s 13.97X and 3.28X
FinancialsFinancials Currently paying off accumulated debtCurrently paying off accumulated debt
Energy
Approach: Searched for companies actively pursuing growth opportunities
Chesapeake Energy CorporationChesapeake Energy Corporation
HAL PPP PEIX CHK
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry E-learning softwareE-learning software
ThemeTheme Expanding into new international markets will drive Expanding into new international markets will drive revenue growthrevenue growth
ValuationValuation 23.07X P/E and 5.99X Price to Book are in line with 23.07X P/E and 5.99X Price to Book are in line with industry at 29.20X and 5.56Xindustry at 29.20X and 5.56X
FinancialsFinancials Strong annual net income growthStrong annual net income growth Subscription renewal rates in excess of 90%Subscription renewal rates in excess of 90%
Technology
Approach: Searched for companies with market changing capabilities
Blackboard, Inc.
TXN BBBB ENER
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
Consumer Staples
Approach: Sought stocks with consistent earnings, high growth potential,and substantial product differentiation
WAG WFMI CHD
Whole Foods, Inc.
IndustryIndustry Whole Foods, Inc. is the largest domestic retailer of natural Whole Foods, Inc. is the largest domestic retailer of natural and organic foods. and organic foods.
ThemeTheme Increased demand from mainstream consumers predicts Increased demand from mainstream consumers predicts increased growth rates, the company holds consistent increased growth rates, the company holds consistent same-store sales growth, and Whole Foods holds a solid same-store sales growth, and Whole Foods holds a solid brand image that sets the firm apart as an industry leaderbrand image that sets the firm apart as an industry leader
FinancialsFinancials Annual sales increase to 21.4% in 2006 and average Annual sales increase to 21.4% in 2006 and average 23.5% over the next 5 years 23.5% over the next 5 years Operating margin of 4.97%Operating margin of 4.97% Historical revenue growth for the past 3 years has been Historical revenue growth for the past 3 years has been 20.4%, compared to the industry’s 3.65%20.4%, compared to the industry’s 3.65%
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
Telecommunications
Approach: Looked for stocks that had growth potential and were not
extremely volatile
No stocks were chosen:No stocks were chosen:- Overall sector was predicted to not perform well over- Overall sector was predicted to not perform well over short- termshort- term- No individual stocks held differentiation in their - No individual stocks held differentiation in their respective industries and valuations were unattractiverespective industries and valuations were unattractive- Certain industries, such as cable and cell phone - Certain industries, such as cable and cell phone services, were too aggressive services, were too aggressive
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Investment BankInvestment Bank
ThemeTheme A “come-back” firm under newer management. Can MS A “come-back” firm under newer management. Can MS keep their promises? keep their promises?
FinancialsFinancials Increased Efficiency with major cuts to operating Increased Efficiency with major cuts to operating expensesexpenses Attractive Valuation seen in P/B and P/E that are below Attractive Valuation seen in P/B and P/E that are below those of its industry peersthose of its industry peers
HighlightsHighlights Improving Weak Divisions; Emphasizing Strong OnesImproving Weak Divisions; Emphasizing Strong Ones Strength in foreign developing markets leads to Strength in foreign developing markets leads to increased market shareincreased market share On Track (Exceeded Expectations Q2)On Track (Exceeded Expectations Q2)
Morgan StanleyMorgan Stanley
Approach: Stable yet attractive growth prospects
AMTD MS WB BSC HIG
Financials
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Vertically integrated, ethical businessVertically integrated, ethical business
SunOpta Food = 90%; Opta Minerals = 9%; SunOpta SunOpta Food = 90%; Opta Minerals = 9%; SunOpta BioProcess = 1%BioProcess = 1%
ThemeTheme Trend towards affordable healthy and responsible Trend towards affordable healthy and responsible lifestyles, in addition to the importance of energy lifestyles, in addition to the importance of energy alternatives, will ensure continued strong growth.alternatives, will ensure continued strong growth.
ValuationValuation 21.9X Forward P/E and 3.1X Price to Book are 21.9X Forward P/E and 3.1X Price to Book are comparable to industry’s 18.7X and 3.22X comparable to industry’s 18.7X and 3.22X
FinancialsFinancials 34 consecutive quarters of record revenues (yoy)34 consecutive quarters of record revenues (yoy)Revenues for 1Revenues for 1stst Qtr 2006 have increased 54.6% and Qtr 2006 have increased 54.6% and expected to increase 47.6% for 2expected to increase 47.6% for 2ndnd Qtr. Qtr.
Industrials
Approach: Identify well-established companies with a strong market-share and potential for continued growth
Sunopta Inc.
COL GDI STKL
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Stock Selection by SectorPortfolio: Stock Selection by Sector
IndustryIndustry Leading biotech company with proven ability to produce Leading biotech company with proven ability to produce revolutionary medicine designed for various unmet medical revolutionary medicine designed for various unmet medical needsneeds
ThemeTheme Continuously developing innovative therapies for a variety Continuously developing innovative therapies for a variety of significant medical conditions ensures continued of significant medical conditions ensures continued earnings potential.earnings potential.
FinancialsFinancials ROE of 18.0 and ROA of 11.9 vs. Industry’s 0.9 and 0.8.ROE of 18.0 and ROA of 11.9 vs. Industry’s 0.9 and 0.8.Record annual revenues for 2005 & continued billion Record annual revenues for 2005 & continued billion dollar revenues for 1dollar revenues for 1stst 2 Qtrs of 2006 2 Qtrs of 200632.89% Operating Margin vs. Industry’s -319.36%32.89% Operating Margin vs. Industry’s -319.36%
Health Care
Approach: Identify companies with strong growth and earnings potential due to evolving product lines.
Genentech Inc.
DNA GSK PFE
SIDE STREET TEAMSIDE STREET TEAMPortfolio: ConstructionPortfolio: Construction
Stock pickersStock pickers
Sector weighting neutralSector weighting neutral
Position size dictated by Position size dictated by convictionconviction
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
Goal:•Invest 30% to 50% of portfolio
Execution:•Invested in 10 Ideas
•Held off on 2 ideas formore research
•Considered underweighting utilities and telecom if there was a continuing difficulty finding new ideas
WEEK 1Arch Chemicals, Inc.
Sigma-Aldrich Corporation
Aptar Group, Inc.
Whole Food Market, Inc.
Halliburton Company
TD Ameritrade HoldingCorp.
Morgan Stanley
Wachovia Corporation
SPY
Sunopta Inc.
Texas InstrumentsIncorporated
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
Goal: •Invest 75% of portfolio into individual companies
Execution:•Capital was allocated based on confidence in stocks
•Added 6 new stocks•Added health care sector
•Diversified portfolio
WEEK 2
Arch Chemicals, Inc.
Sigma-Aldrich Corporation
Aptar Group, Inc.
K-Swiss Inc.
Walgreen Company
Whole Food Market, Inc.
Halliburton Company
TD Ameritrade Holding Corp.
Hartford Financial Services
Morgan Stanley
Wachovia Corporation
Aetna Inc.
SPY
Rockwell Collins, Inc.
Sunopta Inc.
Blackboard, Inc.
Texas Instruments Incorporated
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
Arch Chemicals, Inc.
Sigma-Aldrich Corporation
Aptar Group, Inc.
Deckers Outdoor Corporation
K-Swiss Inc.
Walgreen Company
Whole Food Market, Inc.
Halliburton Company
Pacific Ethanol Inc.
Pogo Producing Company
TD Ameritrade Holding Corp.
The Bear Stearns Companies Inc.
Hartford Financial Services
Morgan Stanley
Wachovia Corporation
Aetna Inc.
Pfizer Inc.
Rockwell Collins, Inc.
Sunopta Inc.
Blackboard, Inc.
Texas Instruments Incorporated
Questar Corporation
Goal:•Completely invest in portfolio
•Diversify energy, consumer discretionary, financials
Execution:•Added 6 new stocks
•Added Utility sector
WEEK 3
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
Arch Chemicals, Inc.Sigma-Aldrich CorporationAptar Group, Inc.Deckers Outdoor CorporationK-Swiss Inc.Church & Dwight Co., Inc.Walgreen CompanyWhole Food Market, Inc.Halliburton CompanyPacific Ethanol Inc.Pogo Producing CompanyTD Ameritrade Holding Corp.The Bear Stearns Companies Inc.Hartford Financial ServicesMorgan StanleyWachovia CorporationGenentech Inc.GlaxoSmithKlein plcPfizer Inc.Rockwell Collins, Inc.Gardner Denver, Inc.Sunopta Inc.Blackboard, Inc.Energy Conversion Devices, Inc.Texas Instruments IncorporatedQuestar CorporationTransalta Corporation
Goal:
•Diversify utilities and technology
Execution:•Added 5 new stocks
•Sold Aetna, did not fit into the Side Street strategy
WEEK 4
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
Goal:•Lower exposure to individual firms
•Diversify consumer discretionary
Execution:•Decreased all holdings to under 6%
WEEK 5
Arch Chemicals, Inc.Sigma-Aldrich CorporationAptar Group, Inc.Deckers Outdoor CorporationK-Swiss Inc.Church & Dwight Co., Inc.Walgreen CompanyWhole Food Market, Inc.Halliburton CompanyPacific Ethanol Inc.Pogo Producing CompanyTD Ameritrade Holding Corp.The Bear Stearns Companies Inc.Hartford Financial ServicesMorgan StanleyWachovia CorporationGenentech Inc.GlaxoSmithKlein plcPfizer Inc.Rockwell Collins, Inc.Gardner Denver, Inc.Sunopta Inc.Blackboard, Inc.Energy Conversion Devices, Inc.Texas Instruments IncorporatedQuestar CorporationTransalta Corporation
Goal:•Limit exposure and reduce risk in energy sector
Execution:•Reduced energy sector’s weight in portfolio
•Added another energy stock with lower beta
WEEK 6
Arch Chemicals, Inc.Sigma-Aldrich CorporationAptar Group, Inc.Deckers Outdoor CorporationK-Swiss Inc.Universal Electronics Inc.Church & Dwight Co., Inc.Walgreen CompanyWhole Food Market, Inc.Halliburton CompanyPacific Ethanol Inc.Pogo Producing CompanyChesapeake Energy CorporationTD Ameritrade Holding Corp.The Bear Stearns Companies Inc.Hartford Financial ServicesMorgan StanleyWachovia CorporationGenentech Inc.GlaxoSmithKlein plcPfizer Inc.Rockwell Collins, Inc.Gardner Denver, Inc.Sunopta Inc.Blackboard, Inc.Energy Conversion Devices, Inc.Texas Instruments IncorporatedQuestar CorporationTransalta Corporation
SIDE STREET TEAMSIDE STREET TEAMPortfolio: Weekly Allocations
SIDE STREET TEAMSIDE STREET TEAMPortfolio: At a Glance
* Outliers have been removed
S&P 500's Weighted Average
Side Street's Weighted Average*
Market Cap 91.1 28.39
Beta 1.00 1.01
Forward P/E 15.59 15.21
Price to Book 3.68 3.75
Debt/Equity 0.71 0.53
Q1 '05 to Q1 '06 sales
Growth 17.24% 27.80%
SIDE STREET TEAMSIDE STREET TEAM
PERFORMANCEPERFORMANCE
SIDE STREET TEAMSIDE STREET TEAMPerformancePerformance
Total Portfolio Return Compared to S&P 500
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Time (days)
To
tal
Retu
rn (
%)
Side Street
S&P 500
SIDE STREET TEAM
Performance
Stock Performance ResultsQ2 EPS
ResultsMean Analyst
ExpectationPercent Above
Expectation
SIAL Sales growth = 1% Operating Margins
increase 2.2% 1.04 0.99 5%
ATR Sales growth = 12% 0.77 0.74 4%
KSWS Net Income growth = 21% 1.28 0.46 178%
DECK Revenue growth = 3.4% 0.21 0.05 320%
COL Profits growth 20% 0.70 0.69 1%
GDI Earnings growth = 124% 0.62 0.54 15%
WB Earnings growth = 14% 1.17 1.15 2%
HIG Earnings Fell 21% 1.52 1.74 -13%
HAL Net Income growth = 51% 0.55 0.49 12%
TXN Revenue Growth = 24% 0.47 0.45 4%
MS Net Sales growth = 61.35% 1.86 1.45 28%
STR Net Income growth = 49% 1.03 0.96 7%
PFEIncome growth = -30% (Up 10% w/o
$1 bil Tax Credit) 0.47 0.48 -2%
PPP Net Income Growth = 250% 1.01 1.01 0%
GSK Profit growth = 15% 0.86 0.88 -2%
DNA Earnings increase = 79% 0.49 0.46 7%
TACRevenue growth = -4% Income
growth 0.35 0.26 35%
CHK Profit growth = 85% 0.82 0.74 11%
Exceeded Expectations
Did Not Exceed Expectations
SIDE STREET TEAMSIDE STREET TEAMSummarySummary
Researched sectors and companiesResearched sectors and companies
Strategy to pick stocks that will Strategy to pick stocks that will exceed expectations in next 12-18 exceed expectations in next 12-18 monthsmonths
Gradual investment processGradual investment process
Weekly competition for capitalWeekly competition for capital
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Learn more about Side Street Learn more about Side Street and research the Fund in the and research the Fund in the ProspectusProspectus
SIDE STREET SIDE STREET Next StepsNext Steps
SIDE STREET TEAMSIDE STREET TEAM
Advisor:Advisor: Tim Ryan- CFA Value TeamTim Ryan- CFA Value Team
Team:Team: Brenna O’Regan- IMD Product Brenna O’Regan- IMD Product MarketingMarketing
Josh Davis- Corporate TechnologyJosh Davis- Corporate Technology
Chris Breen- RetirementChris Breen- Retirement
Anthony Gallardo- 529 College SavingsAnthony Gallardo- 529 College Savings
Nina Reyes- ComplianceNina Reyes- Compliance
Justin Sapolsky- Fixed IncomeJustin Sapolsky- Fixed Income