general body meeting 02-15-12 1. mutual investment club of cornell welcome 2

General Body Meeting 02-15-12

1

Mutual Investment Club of Cornell

2

Welcome


3

News Updates


4

Technology Sector


Today’s Action Open - 514.26, Close – 497.67, -2.31% Went above 500 on 2/13 on strong

earnings and better than expected iPhone sales

High – 526.01 at noon before dropping in a market selloff (Nasdaq down -0.55% to 2915.83)

At 497.58 in afterhours trading


For the Future

iTV and iPad 3 expected this year CEO Tim Cook - “"From the first day [the iPad]

shipped, we thought that the tablet market would become larger than the PC market, I feel that stronger today than I did then.“ App innovation, enterprise sales, smaller iPad in

pipeline Barclays Capital analyst - "If Apple were to sell a

TV, we continue to believe its margins and pricing could be industry leading given its vertical integration with content,“ Integrated television set, ahead of competition, could

contribute $5.40 to EPS


7

Two Minute Drill

Guest Lecturer:

Topic:

Ali Yazdi

Short Squeeze


8

Tata Motors Liquidation Pitch

John Yoshida


Tata Motors Overview

India’s largest automobile company Part of Tata Group

3rd largest bus manufacturer in the world 4th largest truck manufacturer in the

world 3rd largest manufacturer in passenger

cars


Original Thesis Points & Proposal

Current short-term risks outweighing long-term potential Current price level makes investment

extremely attractive Short term play for correction

Geographic and risk diversification for portfolio

Proposal Buy $2000 position Revisit after 20% appreciation


Stock Price Analysis (6-Month)


Stock Price Analysis (Comparison)


Q3 Earnings (2/14/2012)

Revenue: +44% yoy Net income: +41% yoy

China sales Jaguar-Land Rover sales


Original DCF Summary

EV/EBITDA Multiple Range: 7x – 8x WACC: 9%

If anything, conservative

$19.16 – 21.18

Share Px as of 9/21/11: 16.26


Thought Process

Our thesis only was for a short term play and it was fulfilled

Massively outperformed competitors in market Fundamentally don’t see such value left in TTM

Take profits now


Proposal

Sell Liquidate entire position and take profits

of ~90% in appreciation

Questions?


17

Sears Holding Short SaleTicker (SHLD)

Ali Yazdi

Zachary Peskin

Andrew Freiman

Eric Hoffman

Abhi Shah


18

Basics of Retail Industry

Retail firms sell “finished products” to consumers

Second largest industry in the US $3.8 trillion in annual sales (not including

food) Employs 12% of workers in US 90% of retail stores are single stores (i.e.

“mom & pop” stores) World’s biggest retailer is WalMart with

$350 billion in annual revenue


19

Online vs. Stores

Online retailers compete fiercely with traditional, store-based retailers Amazon.com Overstock.com Zappos.com

Online stores can generally offer generic goods cheaper than physical stores

Forrester Research: By 2014: e-commerce will be approx. 9%

of all retail sales


20

Generic v. Differentiated

The specific goods the store sells is important Generic goods

Goods with many perfect substitutes Vacuum cleaners Mops

Sold by many retailers Low margin

Differentiated Goods Few perfect substitutes

iPad Organic supermarket

Consumer seek out these stores High margin


21

Retail Sales


22

Retail Sales ETF: XRT

Top Holdings WalMart Amazon CVS Costco

Dividend Yield = 0.99% P/E ratio = 15.10 Price/Book = 2.02


23

Retail Sales ETF: XRT


24

Sears Holdings Overview


Sears Holdings Corporation: Overview 4th largest broadline retailer,

headquartered in Hoffman Estates, IL. Operates through subsidiaries

Sears, Roebuck and Co. and Kmart Corporation

Sells literally everything Home appliances, tools, lawn and garden,

consumer electronics, automotive repair and maintenance, health and beauty supplies, etc.

Operates approx. 4000 stores in US and Canada


26

Overview Cont.

Merger of Kmart and Sears as Sears Holdings Corporation closed on March 24, 2005 Continue marketing products under previous

labels Launched mygofer.com in 2009

Online grocery service allowing customers to get items from stores where and when they want them

Owns SHC Realty One of largest corporate real estate

organizations worldwide Buy or lease Sears and Kmart stores


27

Products and Services

2011 Energy Star® energy retail partner of the year

Key proprietary brands Kenmore, Craftsman, Diehard and Country

Living collection Key apparel offerings

Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands

Nation's largest provider of home services More than 11 million service calls made

annually


28

Products


29

Competitive Landscape


30

Major Competitors

J.C. Penney Target

Corporation Wal-Mart Lowe’s Ace Hardware

Best Buy Kohl’s Home Depot Bed Bath &

Beyond Amazon.com


31

Profitability

2011 Sears Target Wal-Mart

Gross Profit Margin

26.62% 30.99% 25.04%

Net Profit Margin

(0.85%) 4.31% 3.77%

Return on Equity

(4.56%) 19.79% 25.01%

Return on Assets

(1.41%) 6.39% 8.69%

Return on Invested Cap

(2.96%) 9.09% 13.34%

2011 Net Profit Margin


32

Valuation Ratios

2011 Sears Target Wal-Mart Industry Median

Price/Sales 0.12 0.53 0.49 0.47

Price/Earnings

(14.12) 12.20 13.91 18.21

Price/Book 0.67 2.31 3.16 1.76

Price/CF 476.19 6.74 8.94 10.07

EV/EBITDA 11.87 4.87 6.47 --


33

Financial & Operational Ratios


Financial Ratios

Current Ratio

1.34 1.71 0.89 1.71

Quick Ratio 0.24 0.78 0.21 0.58

Debt/Equity 0.36 1.02 0.73 0.55

Operational Ratios

Inventory Turnover

2.81 4.92 7.75 3.50

Asset Turnover

1.66 1.48 2.30 1.45

Effective Tax

19.35% 35.64% 32.52% --


34

Share Data & Growth


Per Share Data

Revenue $396.82 $99.80 $125.55 $81.55

Dividend -- $1.05 $1.40 $0.26

Cash Flow $0.10 $7.77 $6.93 $3.82

12-Month Growth Figures

Revenue (1.63%) 3.11% 3.34% 2.82%

Net Income (43.40%) 17.36% 14.33% 45.94%

EPS (40.20%) 21.21% 12.37% 44.77%

• High revenue per share offset by consistent revenue decline• Extremely low CF per share and tremendous decline in Net

Income and EPS


35

Financials


Follow the Trend


39

Sears Valuation

Traditional ways of valuing a company Discounted Cash Flow

Sears has negative cash flows though… Multiple Comparisons

Sears has negative multiples though…

Bankruptcy Valuation Essentially look at all of Sears’ total assets

and divide that by the number of shares


40

Sears Valuation

Book Value per Share $71.92

When extrapolating this trend:

Sears will depreciate to zero in Total Equity in 9.6 years


41

Follow the Trend

Depreciating assets, as Sears’ fleet of stores depreciates in value from age and disrepair

Commercial Real Estate Crisis continues to decrease storefront value

Online shopping continues to grow at expense of big box stores

Industry emphasis towards smaller stores means that no one will even buy Sears’ old storefronts


Analyst Price Estimates


43

Technicals


44

Relative Strength Index (RSI)


45

Bollinger Bands


46

Volume


47

Short Squeeze


48

Share Performance

Valid question to be asking: “If Sears is performing so badly, then why

has the stock gained 60% in the past few months?”

Short Squeeze


49

Short Squeeze Overview


50

Short Squeeze Overview


51

Proposal

Short 50 shares of SHLD at: Market Price (approximately 52.5) Grand Total of ~$2600

Short term time frame (2-4 months) Watch reaction after earnings next

Thursday


52

Announcements


53

Stock Competition

Investopedia Trading Simulator $100,000 in Virtual Money Full Trading Platform (Short Selling,

Options) Weekly Leaderboard Update

Game Name: MICC Stock Competition Password: Cornell


54

Stock Competition


55

Brainteaser

What’s the difference between the hour and minute hand when the clock strikes 4:20?

general body meeting 02-15-12 1. mutual investment club of cornell welcome 2

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