general body meeting 02.03.11. mutual investment club of cornell agenda announcements portfolio...

General Body Meeting 02.03.11

Mutual Investment Club of Cornell

2

Agenda

Announcements Portfolio Overview by Terence Portfolio Review


3

Junior Analyst Applications

Description Work closely with senior analysts in

covering a sector Pitches to enhance our portfolio Pay close attention to news within your

sector

Apply online: cornell-micc.com/jobs/ Notifications will be made early next

week


4

Future Events

MICC Newsletter MS GCM Information Session MS FX Dinner Trading Competition Wall St. Training Social Event


5

Portfolio Overview

Terence Hu


6

Overview

Positions Price Shares Mkt Value1 week return YTD Return

Return since Beg. Of August Composition

Philip Morris International Inc. PM 57.69 30 1713 1.93% -1.44% 13.03% 6.30%

The Brink's Company BCO 27.84 70 1929.9 4.82% 3.57% 27.12% 7.10%

Boardwalk Pipeline Partners, LP BWP 32.14 70 2237.2 0.94% 3.24% 4.35% 8.23%

Cisco Systems, Inc. CSCO 21.63 83 1757.11 3.30% 6.92% -6.24% 6.46%Emdeon Inc. Class A Common

Stock EM 15.11 90 1361.7 1.41% 11.60% 20.88% 5.01%

General Growth Properties, Inc GGP 14.8 202 2963.34 1.37% -4.39% 6.32% 10.90%

SPDR Gold Trust (ETF) GLD 130.19 8 1042.88 -0.14% -6.15% 12.73% 3.84%

Howard Hughes Corp HHC 50.39 19 1006.05 -0.28% -7.41% N/A 3.70%

Hewlett-Packard Company HPQ 46.94 13 618.15 3.14% 11.50% 1.95% 2.27%Homex Development Corp.

(ADR) HXM 32.05 60 1968 5.01% -5.21% 7.99% 7.24%

iGo, Inc. IGOI 3.6 297 1078.11 2.56% -6.25% 115.57% 3.97%Occidental Petroleum

Corporation OXY 98.67 15 1457.7 5.10% 0.58% 26.61% 5.36%

The Procter & Gamble Company PG 62.83 21 1398.18 -2.12% -2.33% -5.45% 5.14%

ProShares Short 20+ Year Treasury ETF TBF 45.64 40 1806 1.56% 3.14% 6.02% 6.64%

Telefonica S.A. (ADR) TEF 25.71 20 505.6 3.84% 12.71% 12.71% 1.86%TeleCommunication Systems,

Inc. TSYS 4.19 220 952.6 3.97% -10.28% 16.71% 3.50%

Union Pacific Corporation UNP 94.35 36 3391.2 0.83% 1.82% 26.36% 12.47%


7

Portfolio Composition

Real E

stat

e

Consu

mer

Goo

ds

Finan

cials

Macro

Media

Tech

nolo

gy

Ener

gy

Indu

stria

ls a

nd M

ater

ials

Health

care

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%


8

Portfolio with Cash


9

Portfolio without Cash


10

Technology Sector Update

Josh Lyons


11

Cisco

Designs and sells IP-based networking products and communication devices, for corporate clients and individual consumers Primary revenue generators come from

sales of switches, advanced technologies, and services

$120B Market Cap, $94B EV after deduction of net cash, $15B Debt, $23B net cash CSCO Currently trading at $21.62,

15.86P/E


12

Cisco

Defensive Posturing Stable share price performance Degree of maturity, difficult to move top

line Growth Areas

Mobile internet traffic growth Increased IT sales and corporate upgrades Other products (umi, videoconferencing,

etc) Innovation and Acquisition

$20B in acquisitions over past decade Focus on flexibility with market changes


13

Cisco

Announcement of first dividend September 2010 announcement, 1-2%

dividend expected beginning in fiscal 2011 (ends July)

Broker recommendations Oppenheimer: upgrade to outperform

(Dec 2010), $23 target price Goldman Sachs: buy before earnings

announcement (Feb 9) Upcoming catalyst

Earnings call scheduled 4:30PM EST, Feb 9


14

Cisco

Current Share Price - $21.62


15

HP

Diversified technology company, leader in personal computer systems, imaging, and printing


16

HP

Earnings Expectations Company believes earnings will exceed

analyst projections Forecasting EPS through October 2011 to

range from $5.05-$5.15, 14% YoY growth Market Position

Declining PC market share (-1% YoY) in the face of growth by Lenovo, Acer, others

Netbook sales hurt by tablet (ex: iPad) sales growth


17

HP

WebOS Tablet Event Expected announcement of WebOS-based

tablet on Feb 9 Challenger to iPad, Motorola tablets

Earnings Call Q1 2011 earnings conference call, 5PM

EST, Feb 22 Broker Recommendations

Kaufman Brothers: raised earnings estimates for Q1 from 33.03B to $33.11B (Jan 25)


18

HP

Current Share Price - $46.89


19

iGo

Provider of products for the electronics industry, including energy-efficient AC adapters, DC adapters, and surge protectors

Sells products through retailers including RadioShack, and resellers such as Superior Communications and Ingram Micro

117.40M Market Cap


20

iGo

Entry to new product areas CES 2011: introduced iGo Pocket

Projector, iGo KeyJuice for Apple Devices, iGo Laptop Cooling Pad, iGo noise-cancelling headphones

Products that will grow with mobile device sales

Partnership with Cisco September 2010 announced “Designed

for Flip” accessory program iGo to design and create accessories for

Cisco’s Flip Video cameras


21

iGo

Earnings Projections 2010, iGo lost $0.03 per share 2011, expects earnings of $0.03 per share

Earnings Call Scheduled for March 10, 5PM EST


22

iGo

Current Share Price: $3.57


23

TSYS

Develops and applies secure mobile technology, cloud computing services, local search, telematics

TCS infrastructure essential for E911 call routing

Two primary customer segments: commercial, government


24

TSYS

Growth Areas Domestic demand forecasted to grow at

an average annual rate of 3.5% for the next 5 years


25

TSYS

Broker Consensus 4 x ‘Strong Buy’, 1 x ‘Moderate Buy’, 4

‘Hold’ Valuation

Low P/E (9.88) compared to competitors (ex: Globecomm - 23.72, Comtech Telecomm - 11.52, ViaSat - 71.35)

Earnings Announcement Reported on Jan 25, results in-line with

consensus EPS estimates (-10.7%) 2011 Guidance: 9-11% EPS growth


26

TSYS

Current Share Price: $4.16


27

Health Care Sector Update

Eric Hoffman


Emdeon Thesis and Key Debates (as of 10/27/10)

Buy 90 shares at $13.93 and hold for 1 to 2 years

Healthcare Reform is good for HIT Acquisitions are predicted positive

synergies Valuation supports undervaluation

thesis


What is Emdeon?

Leading provider of medical revenue and payment cycle solutions (Revenue cycle management)

Connects payers and providers Improves efficiency of the US

healthcare system Take advantage of governments

movement towards a digital, computer run system


Stock Price over past 6 months


State of Healthcare Industry

HC expenditures are a significant component of the US economy 16.2% of GDP in 2008; expected to grow

to $4.4 trillion, or 20% of GDP, in 2018 HC administrative costs totaled $360

billion in 2008 Healthcare is provided through a

fragmented industry that has historically underinvested in HIT


Recent Legislation

American Recovery and Reinvestment Act Stimulus intends to create job, promote

investment, and increase consumer spending Cost of $787 billion

Patient Protection and Affordable Care Act New federal law mandating that at least 80

percent of premium revenue must be spent on medical services, not retained as profits or used to pay overhead


HC Current Events

No current need to worry about a repeal of Healthcare Reform Law Unconstitutional? Senate to vote on healthcare repeal

amendment Sufficient votes?


Conclusion

HOLD Thesis still intact Need to keep watch on what Congress

will do in the upcoming months Earning to be announced March 8th


35

Energy Sector Update

Mihir Patel


36

Boardwalk Pipeline Partners

Acquires and develops natural gas pipelines and storage facilities 14,200 miles of pipelines between 12

states 11 underground natural gas storage

facilities Principal sources of supply are regional

supply hubs and market centers in the Gulf Coast region

Provides infrastructure solutions to natural gas producers in the Eagle Ford Shale production area


37

Boardwalk Pipeline Partners

Stable Cash Flows Raise distribution every quarter since their

IPO in ’05 Power Generation

Market/Environmental Factors Move from coal powered to natural gas

powered electricity generation will drive future gas volume growth

Diverse Customers Serves a mix of customers including

marketers, local distribution companies (LDCs), producers, electric power generators, interstate and intrastate pipelines, and direct industrial users.


38

Boardwalk Pipeline Partners - Updates Boardwalk Announces $325 Million

Offering of Senior Notes by Its Texas Gas Subsidiary Primary purpose to repay borrowings

outstanding under its revolving credit facility

Remainder of net proceeds distributed to BWP to retirement of outstanding revolving credit and long term debt

Earnings Call – February 7th, 2011


39

Boardwalk Pipeline Partners – BWP Current Share Price - $ 31.84


40

Occidental Petroleum Corp.

Energy company specializing in the exploration and production of crude oil and natural gas through enhanced oil recovery, primarily in the United States, Latin America, and the Middle East

Company also manufactures chemicals and operates midstream assets including pipelines and carbon dioxide processing plants


41

Divest its Argentine oil and gas operations for after-tax proceeds of approximately $2.5 billion to purchase new U.S. assets

Executed agreements to purchase oil and gas properties in TX and ND for about $3.2 billion

Acquire the remaining 50% joint venture interest in the Elk Hills Power Plant

Expects transactions to be completed no later than the end of the first quarter of 2011

Occidental Petroleum Corp. – Transactions


42

Occidental Petroleum Corp. Q4 Earnings

Net income up 55% year-over-year Cash flow from operations up 60% year-over-

year Oil & Gas production up 5%

MENA Unrest - >25% of oil & gas production Tunisia & Egypt Joint venture opportunity with Abu Dhabi Gas

Development Company Emerging Markets

Strong upscale within emerging markets given the expected increase in demand for oil


43

Occidental Petroleum Corp. – OXY Current Share Price - $ 93.81


44

Consumer Sector Update

David Shim


Procter & Gamble (PG)

The Procter & Gamble Company manufactures and markets consumer products in countries throughout the world.

The Company provides products in the laundry and cleaning, paper, beauty care, food and beverage, and health care segments.

Procter & Gamble's products are sold primarily through mass merchandisers, grocery stores, membership club stores, drug stores, and neighborhood stores.

45


Original Thesis

Portfolio of strong billion dollar brands Consumer preference for quality and

strong value in tough economic environment

Consistent strong performance throughout all markets

Trading at a discount due to fearful market sentiment despite stronger fundamentals

Low risk play on economic recovery

46


Flat Performance47


Updates

Q2 earnings fell 28% due to higher higher costs Costs of goods sold rose 6%; earnings of $1.11 a share, down from

$1.49 last year; PG reported core earnings of $1.13 a share (profit from continuing operations)

However, P&G reaffirmed expected organic sales growth of 4-6% P&G investing $1 billion over 5 years in China to develop research and

manufacturing centers closer to consumers Focusing on core product areas and divesting non-core businesses such

as pharmaceuticals Look for PG to beat analyst estimates and for the stock price to climb


49

Philip Morris International (PM) International tobacco company spun off from the Altria Group in March

2008 World’s largest producer of tobacco products, holding 15.7% of global

market share excluding the United States Sells tobacco products in international markets, while Altria operates in

the US Brands include 7 of the world’s 10 largest: Marlboro, Philip Morris, Bond

Street, Chesterfield, Parliament, Lark A, etc.


50

International Markets

While the US market is stagnant, strong emerging market growth will be a driver for growth as PM operates mainly in South America, Asia and Europe

Newly affluent customers in developing countries provide a growing customer base for the upscale product brands that PM offers, although PM also maintains three value brands (Bond Street, Red & White, Next)

Tobacco products provide steady cash flows


51

Risks:Global economic environment and Health issues Health risk litigation hurts tobacco

companies’ ability to advertise and sell products easily

Economic downturns could easily adversely affect sales in all of PM’s markets

Raised dividends three times since the spinoff from Altria


52

Current Share Price = $56.60


53

Industrials Sector Update

David Wong


54

Union Pacific Corp (UNP)

Recommendation: Hold Thesis:

Expect demand of carriage to continue to increase with growth in US economy

Efficient method of transportation

Great business with a durable competitive advantage

Concern: Huge rise in price (50%)

over the past year


55

Q4 Results

Strengths 44% increase in EPS, yoy 31% increase in operating income, yoy Increased consumer satisfaction (90%)

Weaknesses Q4 operating ratio rose 2% from Q3 Lack of management forecast of 2011 Business volume growth slowed to 9%

compared to 14% in Q3 and 18% in Q2


56

MICC Position

Currently own 36 shares ~ $3350 Largest position in the portfolio ~

12.5% of stock


57

Media Sector Update

Chirag Shah


58

TEF Performance


59

Events

Recent rally Recent deals Eased tensions in sovereign debt crisis

Expansion into mobile market in developing countries JV with China UNICOM Awarded spectrum space in Costa Rica

JV with MasterCard for mobile financial solutions in LatAm


60

Pros and Cons

Good

•Diversified telecom exposure across geographic markets

•Stellar management team relative to competitors

•Heavy infrastructure spending and JVs within its markets – future growth

Bad

•Revenue growth has been shadowed by A/R growth – need to investigate


61

Portfolio Recommdations

Hold stock, buy out-of-money calls if stock continues rally


62

Real Estate Sector Update

Ali Yazdi


63

Homex

November 30th Guidance:• Revenue growth from 13 to 16% in 2011• EBITDA at 21-22% margin• Continued reliance on low income housing in Mexico

Revenue Share

RSI: Multi-year low


64

General Growth Properties

January 25th Dividend:• 38 cents per share (2.6% return)• 2010 dividend, similar dividend for 2011

Dividend PlaysRYN: 3.7% Beta 1.1OTTR: 5.3% Beta 1.18MO: 6.3% Beta 0.46

Beta: 4.00


65

Howard Hughes Corporation

Wonderful websiteAbsolutely no news

Pershing SquareWilliam Ackman• Dividend focus

Insider buying triggering rapid rise


66

Macro Sector Update

Zach Peskin


67

Brinks Company (BCO)

Business Areas: Secure Transportation Cash Handling Security Services NOT Home Security

Operates in 50 Countries Roughly break even investment


68

4Q 2010 Earnings

8% organic growth and acquisitions Strong performance in Latin America,

Europe & Asia Lagging performance in North Ameirca

Margin rates up to 9.7% from 6.6% Acquisitions in Latin America and

Canada


69

Brinks Company (BCO)

Still stands to improve from a growing global economy

Exposure to Eurozone countries is troubling

Still somewhat vulnerable to currency fluctuations

Recommend holding position


70

BCO 1yr Performance


71

SPDR Gold Trust (GLD)

As economies rebound, and markets become less volatile, Gold will decrease from its recent highs

Technicals suggest further drop Better opportunities with other metals

regardless of how the economy trends (i.e. silver)

Future inflation could send Gold higher Recommend selling full position, and

the macro team will look into whether silver (or other metals) make sense


72

GLD 1yr Performance


73

Proshares Short 20+ Year Treasury (TBF)

Treasury prices have hit their peak and are trending downward

In 2011, speculation of rate increases by the Fed, will send Treasury yields higher

No QE3 ETF tracks daily changes; not efficient

in the long run Recommend no action on the position

Look into interest rate options


74

TBF 1yr performance


75

Thanks for coming by!

Junior Analyst Apps Next Week: Financials Pitch

general body meeting 02.03.11. mutual investment club of cornell agenda announcements portfolio...

Documents

terence portfolio review

b debt

b net cash csco

cisco systems

b market cap

deduction of net cash

sector pitches

general growth properties