Stock Analyst Program Winter 2013 Ivan DiZeeshan MaqsoodMIC VP Portfolio...
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![Page 1: Stock Analyst Program Winter 2013 Ivan DiZeeshan MaqsoodMIC VP Portfolio minghui.di@mail.mcgill.cazeeshan.maqsood@mail.mcgill.ca January 25, 2013.](https://reader036.fdocuments.us/reader036/viewer/2022062421/56649cdc5503460f949a7003/html5/thumbnails/1.jpg)
Stock Analyst ProgramWinter 2013
Ivan Di Zeeshan MaqsoodMIC VP Portfolio MIC VP [email protected] [email protected]
January 25, 2013
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Executive SummaryStock Analyst Program 2013
Plans for the Semester
Investment Strategies Recap
Building an Efficient Investment Thesis
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Holidays Book ReviewsStock Analyst Program 2013
Delicious Easy to read
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Plans for the Semester
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Tentative TopicsStock Analyst Program 2013
Recap & Investment ThesisShort SellingBloomberg Tutorial – if the schedule permitsThe industry (guest speakers) – if the schedule permitsStock competition
Any idea?
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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
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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%
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Investment Strategies Recap
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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
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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
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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
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IBMStock Analyst Program 2013
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“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
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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.
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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.
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Growth: Stocks Follow EarningsStock Analyst Program 2013
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Growth: Stocks Follow EarningsStock Analyst Program 2013
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Growth: Stocks Follow EarningsStock Analyst Program 2013
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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
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Building an Efficient Investment Thesis
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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
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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
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Appendix: Examples of Investment Thesis
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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
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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
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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)
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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
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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
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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