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Friday October 18th, 2013

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Title: Slide 1 Author: Windows User Last modified by: Timothy Simon Created Date: 10/18/2013 5:56:23 AM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: Friday October 18th, 2013


1
Friday October 18th, 2013
  • Lafayette College Investment Club

2
Meeting Agenda
  • Important Events Coming Up
  • Daniel Kilmurray 75 UBS Managing Director
    Institutional Equity Sales (speaking next Friday
    October 25th)
  • 1) Market Update
  • 2) BUY/SELL (Continuing Allocation)
  • 3) How to follow up post-finance night

3
Market Update10/18/2013 Chris Busuttil
4
Debt Deal
  • Senate voted 81-18 to reopen the government
    through January 15, suspending debt ceiling to
    February 7 (House followed suit)
  • Over the past six presidential administrations
    the debt ceiling has been raised 45 times, 37 of
    which occurred when debt levels reached 98 or
    higher
  • Viewed as Republican loss in regard to curbing
    Affordable Healthcare Act

5
Debt Deal
  • To the conservative rebels who brought on a
    government crisis their partys elders never
    wanted the point is simple They wanted to
    demonstrate that they dont simply oppose
    President Barack Obamas signature health-care
    program, but find it so philosophically
    objectionable that they will fight it at every
    turn. -Gerald F. Seith

6
SAC Insider Trading
  • Have agreed in principle on a penalty exceeding
    1 billion in a potential criminal settlement
    that would be the largest ever for an
    insider-trading case
  • On top of 616 million penalty the firm agreed to
    in a civil insider-trading settlement with the
    Securities and Exchange Commission in March.
  • Total payments hovering around 2 billion in
    total payments
  • To be clear, this is the company is at fault,
    there are no specific employees that are being
    accused in this particular case

7
No Pay day at Goldman
  • The New York bank reported a steep drop in
    fixed-income trading revenue for the third
    quarter, leading to a 20 tumble in overall
    revenue from a year earlier.
  • Goldman helped counter those shortfalls by
    reducing the amount it set aside for
    compensation. That left Goldman's employee pay
    and benefits costs at 41 of revenue, its lowest
    compensation ratio through the first nine months
    of a calendar since the company went public in
    1999.
  • All told, Goldman has allocated about 320,000 in
    compensation and benefits per employee for the
    first nine months of the year, down from 336,000
    in the same period a year earlier.
  • Goldman isn't the only bank to suffer from the
    fixed-income slump, though its decline was
    steeper than rivals, such as, J.P. Morgan,
    Citigroup and Bank of America.

8
Earnings Calls
  • Blackrock rose 14 as its assets under management
    climbed above 4 trillion dollars
  • Bank of America posted solid third quarter
    earnings on a pickup in loan demand
  • IBM reported its sixth straight quarterly revenue
    decline but earnings rose 6
  • UnitedHealth Group, dropped after matching
    forecasts on earnings but falling shy on revenue.
  • Verizon gained on subscription growth and Ebay
    missed targets and painted a negative outlook
    going forward

9
Economy
  • The SP 500 pushed to a record high of 1733.15,
    as investors turned their focus away from the
    averted government-funding crisis and began
    wrestling with corporate-earnings reports
  • Among developed countries, the proportion of the
    unemployed who have been without work for 12
    months or longer continued to rise in the second
    quarter to reach the highest rate since 2008, 8.
    Comprising 35.3 of the total number of
    unemployed workers.
  • The U.S. economy expanded at a modest to
    moderate pace in recent months, through
    uncertainty from fiscal deadlock was felt
    throughout the country, according to the Feds
    survey of regional economic conditions
  • Central banks beige book report, released
    Wednesday, found eight of twelve districts
    reporting steady growth rates from the summer and
    four districts indicated slower expansion

10
Restructuring Initiative
11
UnitedHealth Group (UNH)
  • Currently trading at 75.19 and we have 100
    shares
  • We have made money on this stock (bought at
    mid-50s) but there is a lot of room for it to
    grow
  • Why will this stock continue to grow?
  • For two straight quarters they have predicted low
    numbers and crushed them out of the ballpark,
    raising their price. They have predicted low
    earnings again for this quarter
  • UNH is going to out price the Obamacare
    exchanges.
  • This means that any person buying insurance that
    has government subsidized pricing will receive
    coverage from a smaller carrier, not UNH (or
    Cigna, BlueCross BlueShield etc.)
  • UNH has the largest share of the insurance
    market, and will continue to cater toward
    mid-to-large sized corporations, they dont need
    Obamacare to continue to turn profit (which they
    have predicted to be small)
  • Downsides
  • The average investor does not trust this stock
    because of healthcare uncertainty in the U.S.
  • In the next 10 years, they may lose some of
    their market share due to Obamacare exchange
    companies increasing revenue
  • RECOMMENDATION Buy 150 shares at current price

12
Sell Hewlett Packard
  • PC business revenues are slowing down
  • Printing is only 20 of revenues
  • Thin margins (-1.13) against competitors (11)
  • Debt/Equity 99 insolvency issue

13
Baidu, Inc. (BIDU)
  • Buy 30 more shares (1)
  • Have 30 shares (1)
  • Total 60 shares 2

George Rakic
14
What is Baidu?
  • Chinese Google

Sector/ Industry
  • Sector Tech
  • Industry Internet Information Providers

15
How is it actually doing against competitors?
  • In China, it is dominant (60 market share)

16
Baidu Vs Google
  • Baidus search algorithm works well with Chinese
    language, Googles doesnt
  • Googles play with NSA isnt too good in East Asia

17
Valuation metrics
Baidu Google
Trailing P/E 31.41 25.98
Forward P/E 23.96 17.59
PEG 1.42 1.36
EPS 4.78 34.57
18
CYS
  • SELL all CYS
  • CYS Investments, Inc., a specialty finance
    company, invests in residential mortgage
    pass-through certificates in the United States.
  • Not sure if investing in REITs is the best thing
    at this time (mortgage market slow, people
    arent buying first time houses)
  • Large amount of debt
  • Total Cash 376.37M, Total Debt 13.86B, Total
    Debt/Equity 680.70
  • Operating Cash Flow -4.67B
  • Bottom Line Bad fundamentals and bad market
    timing

19
CSCO (currently trading at 22.66)
  • Cisco Systems, Inc. designs, manufactures, and
    sells Internet protocol (IP) based networking and
    other products related to the communications and
    information technology industries worldwide
  • Market cap 121.39B
  • PEG ratio 1.20, Price/Sale 2.54, Price/Book
    2.10
  • Revenue 48.61B, Revenue per share 9.12, Diluted
    EPS 1.86
  • Total Cash 50.61B, Total Debt 16.21B, Current
    Ratio 2.95
  • Operating Cash Flow 12.89B, Forward Annual
    Dividend Yield 2.90
  • Competitors ALU, HPQ, JNPR
  • Largest market cap, highest gross margin, EBITDA,
    Net income, EPS of competitors
  • Suggest buying until 2 portfolio allocation is
    met
  • BUY 83 shares _at_ 22.66 (around 1,890.62).
  • Bottom Line strong market share in industry and
    solid fundamentals

20
MDT- Medtronic
  • Medtronic, Inc. manufactures and sells
    device-based medical therapies worldwide.
  • Stock is still fundamentally cheap to its
    competitors
  • 14 times Earnings (P/E)
  • 10 times EBITDA (EV/EBITDA)
  • Comps trade at a much higher premium
  • High return on equity and strong margins
  • 10 percent revenue growth, guidance forward is
    strong
  • Currently entering new markets and stealing
    market share
  • Unique and diverse portfolio unlike any other
    company in the industry, positions well to
    pricing wars
  • History of rewarding shareholders with dividends
    (strong management)

21
Following up after Finance Night
  • How to effectively stay in front of people

22
Being Thoughtful
  • The time frame in which you follow up with alumni
    should be as soon as possible
  • Three Things To Remember when following up
  • 1) Be polite obviously but dont sound robotic
  • 2) Mention something you talked about i.e. golf
    or football, so they actually know who you are
    (believe me they dont)
  • 3) Thank them for their time be assertive with
    what you want (advice, help with an internship),
    but know what you want before you ask for help

23
What happens when you receive no answer?
  • The honest truth, the average guy in finance
    probably receives over 400 emails a day, dont be
    offended if they dont answer within a day or
    two.
  • There's a realistic time frame in which a second
    follow-up email should be written but that should
    be a week or longer.
  • They want to help you so dont annoy them,
    fastest track to the trash bin.

24
Be Prepared To Call
  • Everyone respects a good communicator, strong
    communication skills are required to be
    successful in any financial services role.
  • Be prepared to schedule a phone call, have a few
    notes on what you want to say, but show the
    person that you are a normal guy.
  • No one likes a robot
  • This may sound simple, but an email takes 15
    seconds, a phone call is meaningful.

25
LEVERAGE, LEVERAGE, LEVERAGE
  • USE YOUR CONNECTIONS
  • If you build a connection with someone, use it as
    leverage to get an in.
  • Dont be afraid to use your relationships and
    connections, also people are more likely to trust
    you and give you a shot if they are familiar with
    you.
  • Relationship development is huge on the street,
    it is an essential skill.

26
KEY MISTAKES MADE
  • 1) Sending the same email just changing the name
  • 2) Being annoying and rude
  • 3) Not knowing what you actually want (Which is
    normal however, make sure you know what you are
    talking about)
  • 4) RESUME BOMBING DOESNT WORK

27
Conclusion
  • Be thoughtful with your approach, mention your
    conversation that you had, something unique.
  • Make sure you have a plan or objective behind the
    email, just saying hello (this is someone you
    want to hire you not your buddy).
  • Finally, be aggressive, dont give up, dont get
    too discouraged, remain calm and continue to seek
    out options.
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