stock analyst program winter 2013 ivan dizeeshan maqsoodmic vp portfolio...
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Stock Analyst ProgramWinter 2013
Ivan Di Zeeshan MaqsoodMIC VP Portfolio MIC VP [email protected] [email protected]
January 25, 2013
Executive SummaryStock Analyst Program 2013
Plans for the Semester
Investment Strategies Recap
Building an Efficient Investment Thesis
Holidays Book ReviewsStock Analyst Program 2013
Delicious Easy to read
Plans for the Semester
Tentative TopicsStock Analyst Program 2013
Recap & Investment ThesisShort SellingBloomberg Tutorial – if the schedule permitsThe industry (guest speakers) – if the schedule permitsStock competition
Any idea?
The goal is to write & present a concise investment thesis
Highlights
Format
Team: 1 to 3 people Research report : 2 to 3 pages
Description of company 3 – 5 points investment thesis Detailed Rationale
Presentation: 8 minutes Present key ideas and rationale
Evaluation Procedure Valuation Comprehensiveness Consistency
Prize: TBD (there will be food)
Stock Analyst Program 2013
Key Dates
Stock Pitch Consultation sometime in March
Mar 15: Official Competition
Research Report EvaluationStock Analyst Program 2013
Evaluation Criteria
Industry Analysis 30% Presentation/Research Paper 10%Identification of key metrics and ratios /10% Organization /3.3%Identification of key trends /10% Flow /3.3%Choice and rationale for industry /10% Content /3.3%
Stock Analysis 40% Technical Analysis 20%Quality of valuation & depth of research /20% Clear investment horizon /5%Investment rationale /20% Entry & exit strategies /15%
Total 100%
Investment Strategies Recap
Value InvestingStock Analyst Program 2013
Stock is fractional ownership in a business Business valuation can be assessed
Tangible assets PV of cash flows PV if cash flows with growth
Mr. Market Creates Opportunities Misunderstood situation
Buy with a margin of safety and wait RIMM @ $7 in 2012 Canadian Pacific Railway @ $70 in 2012 AT&T @$28 in 2011
More certain
Less certain
Graham’s Cigar ButtsStock Analyst Program 2013
Not as Many Today Buffett (Stock Example) Balance Sheet Driven Emphasis on Diversification Graham Beat by 2%/Year over 20 Years http://www.oldschoolvalue.com/stock-screener/net-net-workin
g-capital-nnwc-stock-screen.php
Broadening Intrinsic Value DefinitionStock Analyst Program 2013
A Stream of Cash Flow has Value
How much is $100/year forever worth?
How much is $100/year growing at 2% forever worth?
Not all growth is profitable Requires capital, capital has a cost, profitable of ROIC>WACC
IBMStock Analyst Program 2013
“Magic Formula” InvestingStock Analyst Program 2013
High ROIC as a proxy for good business Low P/E as a proxy for cheap https://www.magicformulainvesting.com
Growth: Philip FisherStock Analyst Program 2013
Long-term growth investor Talk with suppliers, customers, competitors, clients Concentrated Portfolio 15 Points (Session X)
Large and expanding market Vision of management Great R&D and sales force Profit margin Depth in management Factors of success in industry Etc.
Growth: Catalysts for EPS GrowthStock Analyst Program 2013
Stocks Follow EPS Improving Fundamentals Examples
New products Cost-cutting New management team M&A Industry turnaround Etc.
Growth: Stocks Follow EarningsStock Analyst Program 2013
Growth: Stocks Follow EarningsStock Analyst Program 2013
Growth: Stocks Follow EarningsStock Analyst Program 2013
Arbitrage/Special SitsStock Analyst Program 2013
Risk Arbitrage Bankruptcies (Post-Re org equities) Warrants Spin offs selling effect Dual class arbitrage Closed-end fund/NAV discount
Building an Efficient Investment Thesis
Investment ThesisStock Analyst Program 2013
Purpose: Rational Investing, Relative Conviction, Selling Decision
Format: 2 – 5 bullet points
Content: Financials, Strategy, Valuation, Sentiment
Every Stock you Own Should Have an Investment ThesisEvery Stock you Own Should Have an Investment Thesis
ENTER FrameworkStock Analyst Program 2013
Exceptional: Insights about the future
Novel: Must be out-of-consensus
Thorough: Backed by sound research
Examinable: Provide your data
Revealing: Explain contra thesis as well as conviction level
Source: James Valentine, Best Practices for Equity Research Analysts
Appendix: Examples of Investment Thesis
Home Capital Group (HCG)Stock Analyst Program 2013
Leading mortgage lender (non-prime)
Post-Flaherty rules benefits HCGHousing market is hot but management has high underwriting standardsAttractive risk/reward as market underestimates risk of housing boomAttractive valuation as a standalone
Toronto-Dominion Bank (TD)Stock Analyst Program 2013
TD is Canada`s second largest bank operating four business segments: personal and commercial (Canada), wealth management and wholesale banking. TD operates in Canada`s regulated banking market.
We like TD`s execution of its core banking businesses in Canada and the U.S. There are opportunities and growth in the bank`s U.LS. Markets will outweigh any slowdown in its native Canada as their U.S. subsidiaries gain market share
Increased U.S. presence- Acquisitions (Banknorth Group 2004 & Commerce Bancorp in 2007)High growth (15.7% over the past 7 years)High returns (15% average over the past 12 years)High quality loan portfolio
American International Group (AIG)Stock Analyst Program 2013
AIG is an international insurance company, serving customers in more than 130 countries. AIG companies serve commercial, institutional and individual customers through property-casualty insurance, life insurance and retirement services.
Great Franchises that earn 10% on equity#1 in global property and casualty insurer under Chartis#1 in America for life insurance and retirement services under SunAmerica
De-risked Balance Sheet89% reduction in derivative exposure94% reduction of trade positions95% reduction of CDS portfolio
Significant Discount to PeersTrades at 0.56x book value against Chubb Insurance (1.2x), Ace (1.1x), Travelers (0.9x) and Allstate (0.8x)
American International Group (AIG)Stock Analyst Program 2013
What you pay vs. what you get
Pay$36 – market cap of $53bn
GetTangible book value / share of $60 – book value of $80bnReserves of $103bnDTAs of $17bn to $25bn10% ROE
Catalyst$18bn in share buybacks at 0.50x book valueGovernment exited its investment (Dec 2012) which $22bn profit20% ROI
ADTStock Analyst Program 2013
ADT is a provider of electronic security, interactive home and business automation and related monitoring services. Spun off Tyco International in November 2012
Unique Franchise#1 market share, 25% market share (second is 4%)15-21% unlevered IRR on new subscribersGrowing industry
Defensive, predictable business modelRecession resilient 4% growth90% revenues are recurring (3 year contract, 7-8 years of customer life)
Strong financial profile with stable, consistent cash flows40% EBITDA margin, 16% UFCF margin
ADTStock Analyst Program 2013
ADT is a provider of electronic security, interactive home and business automation and related monitoring services. Spun off Tyco International in November 2012
Unappreciated secular growth tailwindsPulse and Home automation (30% higher price point)Home ownership is on the rise
Balance Sheet optionality3.0x net debt/EBTIDA to repurchase 30% of outstanding shares
ValuationLevered Steady State FCF / AFFO MultipleADT at 9x, MLP 15x, Staples at 17x, REITs at 22x