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19
Stock Pitch 101 Asset Management Club Sept 23, 2008

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Stock Pitch 101Asset Management Club

Sept 23, 2008

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Agenda

How to screw up stock pitch interviews?

How makes a good stock pitch?

Where are the resource?

Introduction of Bloomberg Terminal

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Ways to Screw up Stock Pitch Interviews

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Example 1 : BUY APPLE (AAPL)

[Jan 2007] “AAPL is a BUY because Apple is going to launch IPhone and everyone likes it!”

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IPhone launchedApple announced date to

launch IPhone On Campus Interviews

Problem 1: No Value Added Solution: Avoid Big Cap, “popular stock”

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Example 2: SELL Hershey (HSY) [Jan 2008] HSY deserves a SELL because the price for sugar increased, and therefore its near term profit margin will be further squeezed.

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Historical Sugar Price

Problem 2: No Firm-Specific CatalystSolution: Dig deep into the company’s unique strategy:

Porter’s five forces

Recommendation

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Example 3: BUY Las Vegas Sands (LVS)

[Jan 2007] LVS is a BUY because it was chosen to build Singapore Casino.

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Problem 3: Past events should have been priced into the stock Solution: Explain the difference between your analysis

and market consensus

LVS won Singapore Casino bid. The casino will open in 2009.

Recommendation

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Example 4: BUY Exxon Mobil (XOM)

[Jan 2008] XOM is a BUY because oil price will continue increasing.

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Problem 4: No Catalyst! Why Now? Solution: Always start with a catalyst.

Historical Oil Price

Recommendation

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Example 5: BUY Yahoo (YHOO)[Mar 2008] BUY Yahoo. Since Microsoft needs Yahoo’s search share desperately, it will likely increase the price to acquire YHOO.

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Problem 5: Need to consider all possible outcomes Solution: Perform a scenario analysis.

Microsoft proposed acquisition of Yahoo at a price of $31 YHOO sought to restart merger talks with AOL

Recommendation

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What makes a good stock pitch?

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Step 1: Identify the Target Finding the Catalyst is the key

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Do

▲Top Down approach (screening software)

▲Bottom up approach / Pick the company/industry you are familiar with

▲Look for Catalyst

Don’t

▼Get the stock pitch ideas from sell side reports

▼Pitch a company without catalyst

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Step 2: Company Research – What’s ImportantUnderstand the industry and competition. Understand the company’s revenue drivers. Identify the trend and find out the reason.

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▲Understand the industry and competition: what is growth potential?

▲Company’s operation – Major revenue sources? What is its market share? : Whether catalyst is relevant and significant?

▲Company’s competitive advantages - Porter’s five forces (Barriers to Entry/ Bargaining Power with Buyers & Suppliers/ Substitute Products or Services/ Intense Competition from Rivals) : Whether performance is sustainable?

▲Company’s position: new player? Leader? Gaining/Losing market share?

▲Identify the trend and understand why: profit margin decline? Sales drop? Lower free cash flow? Whether the trend will persist?

▲The quality of the management: New or old? Credible?

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Step 3: ValuationValuation will make our break your stock pitch. You need to give a target price along with your BUY/SELL recommendation

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▲Comparables analysis - Who are the company’s closest competitors & what are their respective valuations (P/E, EV/Sales, EV/EBITDA, P/B, P/CF)

▲Historical Valuations

▲DCF and/or Earnings Model

Three ways to value a stock

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Other things that make a good stock pitch

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Good stock pitch provides new value, tells an interesting story and makes people think.

▲Where are you differentiated from the market view? What is the market focused on that may not be important? What are you focused on that the market may be overlooking?

▲Fundamental valuation has a 12 -18 month focus. But it is also important to understand the how the inefficiency in the short term might influence the stock price.

▲Don’t forget about risks.

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Where are the resource?

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Where to find information for company/stock?

All Can Be Found on Fuqua Library Website under the “Databases” tab

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▲First Call Historical Database via WRDS (earnings estimates)

▲LexisNexis (news articles)

▲MarketLine (company research)

▲OneSource (company data-segments, financials)

▲Reuters Research on Demand (sell-side reports)

▲Thomson Research (10K, 10Q, Annual Reports)

▲ValueLine (screens to find ideas)

▲Zacks.com (market research, news, screens)

▲Bloomberg Terminal (in Fuqua Library)

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Where to find information for sector/industry?

All Can Be Found on Fuqua Library Website under the “Databases” tab

▲MarketLine (Porter’s Five Forces Analysis, industry analysis, historical data)

▲Standard & Poor’s NetAdvantage (BEST source for industry/sector information and data, How to Analyze that Sector, What’s important, What Financial Information is Important, etc.)

▲Mintel Market Intelligence

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Where to know more about stock pitch

Past year materials are all kept in the AMC network folder

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▲To access the folder: On Windows, press the Start button, and select Run... and paste the following into the Open: box in the Run window.

\\galaxy.fuqua.duke.edu\AMC-2010$

▲You can also find the link under the fuquaworld team tool

▲Open the folder 2008-2009/Stock Pitches-Where to Start

▲Fundamental Equity Analysis A Primer

▲Industry Analysis A Primer

▲2 folders with Previous Year’s Stock Pitches

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Takeaways

Three skills to demonstrate in an equity research interview: Analyzing, Stocking picking and Marketing

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▲Analytical skill: accounting, strategy, marketing, economics, statistics

▲Stock picking skill: think outside the box for the catalyst. Add values to your investors/interviews/listeners

▲Marketing skill: Show you conviction through delivering your stock pitch. Concise and Persuasive.

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Bloomberg Demonstration