Transcript FridayMarch28thMeeting - Sites at Lafayette

Friday March 28th, 2014
Lafayette College Investment Club
Announcements
• 1) The BAT Test
– April 5th, 2014 10:00 AM in Engineering Building Acopian - 223B
– Register at www.takethebat.com
• 2) Mentor Program
– Wednesday April, 2nd in TBD classroom
– All are welcome announcements to follow via Email with instructions
– Pizza and Soda provided
• 3) Trivia
– I will ask a trivia question at the end of the meeting
– Winner takes home - Investment Club Fleece
• 4) Board Positions Opened
– We are graduating 5 spots
– We had a mandatory meeting already but anyone is welcomed to run
• 5) Board Meetings still open on Mondays at 12:15 pm in Simon Lobby
– We encourage all ideas and backgrounds
Meeting Agenda
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1) Market Update – Ryan McCormick
2) Portfolio Update – Tim Simon
3) Educational Piece – Craig Scheuerle
4) CLOROX – Sell pitch by Angel Stoychev
Market Update
3/28/2014
By: Ryan McCormick
Fannie Mae / Freddie Mac
• Proposal comes 6 years after Gov. rescue
• New mortgage securities / lenders take initial
losses
• Private entities can purchase Gov. guarantees
• Attempts to prevent careless lending
Employment Data
• National quit rate fell to 1.7% in January
• 1st drop in quits rate since March 2013
• Indicates economy slowed over the winter
• Quits rate is more important considering
questionable unemployment data
No Quick Increase in Hiring
• Companies continue to increase spending
• Encouraged by an end to gridlock in D.C.
• CEOs do not project an increase in hiring
• Turmoil in Russia / Ukraine hurt hiring
• Global companies concerned with sales
Federal Reserve
• Policy makers debate how to communicate
future path of interest rates
• Had promised to raise rates when U=6.5%
• Offer broad assurances, not specific number
• Want to consider wider range of indicators
• Could hurt Fed’s future credibility
Yellen Comments
• Yellen announced rates could rise 6 months
after QE ends
• Rattled markets causing stock prices to fall
• Shows how sensitive markets are to the Fed
• Yellen has difficult challenge with guidance
Portfolio Update
Both Prior and Post Spring Break
By: Tim Simon
Caterpillar INC: CAT
• 4.02%
• Up 15.63% In past 3 months
• Sales of construction equipment rose despite weather
conditions
General Electric Co: GE
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4.72%
Down 1.1% in past 3 months
$3 billions in bond sales
Signed one year agreement with NYPA
UnitedHealth Group Inc: UNH
• 3.96%
• Up 6.72% last 3 months
• In Feb online bill payment grows to more than 50,000
Biggest Gainer – AKAM 24%
Biggest Loser – Baidu down 15%
Overall Portfolio
• Month over Month – We are roughly down 1.05% give or take a few basis points. The
benchmark is down roughly -5.25%.
• YTD – We are up 30 basis points where the
market is up 78 basis points.
• Our biggest concern is the 5% allocation into
GILD which is down roughly 13% this month.
The Sell Side
By: Craig Scheuerle
I want to work for an investment bank…..
Main Components
IB
S&T
PWM
Investment Banking
Sales and Trading
Private Wealth Management
Investment Banks serve as intermediaries between providers and
users of capital
Chinese Wall
Strategic advisory
Securities underwriting
Users of capital
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Sales &
Trading
Investment
Banking
Research
Corporations
Governments
Municipalities
Private side
Public side
Providers of
Capital
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Individuals
Pension Funds
Insurance Companies
Asset Managers
Corporate Treasuries
Sovereign Wealth
Funds
IB Overview
A
IB
B
Overview of Investment Banking
Capital Markets
Advisory
• Equity capital-raising
o Initial public offerings (IPOs)
o Follow-on offerings
o Equity-linked (convertible)
• Debt capital-raising
o High-grade or investment grade
o High-yield
o Syndicated loans
o Tax-exempt
• Mergers & Acquisitions
o Buyside
o Sellside
o Spin-offs / Splitoffs / Carve-outs
o Hostile defense
o Hostile takeovers / proxy fights
o Joint Ventures
• Restructuring
• Ratings
What Does An Investment Banker Do?
Origination
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Client Relationship Management
o Ongoing dialogue on financial
markets, industry developments, new
products
o Long-term relationship as advisor to
Senior Management and Boards
Idea Generation and Problem Solving
o Strategic Alternatives
o Capital Raising
o Optimizing Capital Structure
o Risk Management, Dividend Policy
Assessment Of Opportunities
Execution
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Financial Analysis
Communication
o Management, Board of Directors
o Internal Committees
Identify Potential Investors
Negotiation / Structuring Transactions
Due Diligence
Documentation
Investment Banking Groups
Capital Markets
• Equity Capital
Markets
• Debt Capital
Markets
• Tax-exempt
• Leveraged
Finance
• Securitized
Products
“Markets”
Industry Coverage
Product
• Consumer &
Retail
• Healthcare
• Technology
• Media & Telecom
• Industrials
• Natural Resources
• Real Estate
• M&A
• Corporate Finance
“Technical”
Investment Banking Competitive Landscape
Bulge
bracket
Middle
Market
Boutique
Low
Capabilities
High
By: Angel Stoychev
Sell Clorox
CLX Overview
• Produces laundry additives, bleach, stain
fighters, color boosters, home-care products
• P/E = 20
• Beta = .4
• Dividend yield = 3.6%
• Last price = 87$
• Currently 2.5% of the portfolio
Over leverage
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Total Debt = 2.51B
Total Cash = 341M
Total Debt/Equity = 1,610
Current Ratio = 1.27
Interest Coverage Ratio = Interest Expense/EBIT=
20%
Balance Sheet
Assets
4,311,000
Liabilities
4,165,000
Stockholder Equity
146,000
Net Tangible Assets = (1,586,000)
Bad Cash Flow Management
• Dividends Paid = 335M
• Cash Flow from Operating Activities = 775M
• Net Cash Flow Change = 32M
Stagnation
• Revenue increased at 1.2% annually
• EPS flat or declining in recent quarters
• 12-mo stock performance flat
Management, Insider transactions
• Economic profit = Earnings from continuing ops
+ Interest Expense
- Income tax expense
- Capital charge
• Insider closing out positions
– 8,000 shares sold in the last 24 weeks (2 weeks worth
of daily volume)
Sell-side coverage
• UBS (Sell), Goldman Sachs (Sell), Credit
Suisse (Underperform)…
Summary
• Over leverage + Stagnation = Lagger
• Replace with a company that will benefit from
improvement in the economy