Stock Pitch
Archived Information for Spring 2011.
To be updated for Spring 2012 soon.
Rules:
Excluded industries/sectors:
Financial companies (banks, insurance companies, real estate investment trusts, etc).
Commodity companies (oil and gas, gold, copper, etc).
Utitilies companies (electricity, water, gas, telecom, etc).
Biotech companies are hard to understand. Choose them at your own risk.
You can express both positive and negative views on the investment targets.
I suggest choosing companies the products and services of which you can manage to understand in depth
e.g. American Eagle Outfitters, McDonald, Starbucks, Viacom (MTV), ...
It it unlikely that a 20-year-old finance major knows much about the biotech industry.
No extra credits are given for tackling very difficult companies.
It is easier to for you to say something intelligent about products or services that you actually understand.
You cannot pick a company that is the main study subject of an FI414 case.
Schedule:
If more than one team picks the same company, the first-come-first-choice rule applies.
This should encourage you to e-mail me your team's selection as early as possible.
The event is consisted of two parts:
Presentation session, and written Research Report
The event takes place on three days: 3/21/2011 (Team 1,2,3), 3/23/2011 (Team 4, 5, 6, 7), 3/28/2011 (Team 8, 9, 10).
A research report including DCF valuation tables will be submitted much later (the deadline is 04/27/2011)
Recommended length: 7 pages of text plus any number of tables/charts.
(Update: DCF valuation is not required any more, and the total length of the Report, including all tables and charts, is limited to 7 pages. There are no restrictions or prescriptions on font size, page layout, etc)
Presentation:
25 minutes are allocated to each team.
The presentation lasts about 20 minutes.
Q&A for the about 5 minutes.
In the presentation, you won't make a buy/sell/hold recommendation, or conduct a DCF analysis.
You will do that later only in the Research Report. (Update: DCF valuation not required any more)
This special arrangement can help you overcome the habitual "confirmation bias" (also known as "Monday-Morning-Quarterback")
Warren Buffett: "Chains of habit are too light to be felt until they are too heavy to be broken."
In the presentation, you should at least tell us:
The economics: How does this company make money?
This is probably the most important part of your presentation.
Explain to us in plain language the company's business model.
If it is too complicated to explain, this company is probably not really making money (think Bernard Madoff Ponzi scheme, Enron Scandal, etc).
Pick a company with a simple business model and make your life easier.
Market definition: What market is this company serving?
Be specific. Product markets are "local"!
A snowboard maker doesn't compete with a surfboard maker, although both are sports equipment companies.
Whirlpool doesn't make TVs and doesn't compete with Sony.
Hawaii Airlines doesn't compete with Air France, although both are airlines.
Sizing the market: How large is the market?
Use common senses and educated guesses
e.g. There are 100 million households in the U.S. If each household spends $3,000 /year dinning out, then the restaurant market is $300 billion.
Market potential: How fast do you expect this market to grow (decline) in the next five years and in the long term?
Be realistic: diaper unit sales in the US are not going to grow more than 2% a year.
The industry competitive landscape: Who's the major competitors? Their market share?
Porter's 5-Forces Analysis: Competitive pressure from existing rivals and potential entrants, potential substitute products, bargaining power of suppliers and buyers, etc.
The strengths and weaknesses of this company vs. competitors
Do you think this company is going to grow faster or more slowly than the industry? (i.e. is it gaining or losing market shares).
The company's "economic moat"
What barriers does this company have to fend off competitions?
For how long can this company sustain its current high profitability and high growth?
Research Report:
While the goal of the presentation is to inform, in the research report you also try to persuade.
Pay attention to the aesthetics of the report.
Make your reports look as professional as possible. Form is as important as content.
You can find in the Class Notes section some samples of real research reports from Wall Street firms.
Update: DCF model, target price, buy/sell/hold recommendation is not required any more
In the Research Report, you should explain to us the assumptions you make in your valuation model about the company's future.
Future revenue growth, profitability, capital investment requirement, etc.
Back them up with convincing arguments.
Anyone can come up with some random numbers and plug them into a DCF model.
Coming up with reasonable and plausible numbers is much harder.
Tell us what assumptions may justify the stock's current price.
That is, tell us the future business prospect of the company implied by its current market valuation.
Tell us what you think the more plausible assumptions should be.
That is, what future you are envisioning for the company.
Set a target price
We would like to know not only whether a stock is a good investment, but also how good it is.
Recommend BUY if the stock is >25% undervalued, SELL if >25% overvalued, and HOLD for stocks in between.
Grading:
You are graded based on how well you understand the company and how convincing your arguments are
Demonstrate that you are the expert of a company and its industry.
In fact, actual future performance of the stocks you pick has no impact at all on your grade.
My advice for selecting stocks to pitch:
Look around you (home, mall, etc), identify a product or service you like, and find out whether the product/service is provided by a publicly-listed company.
For example, you are shopping in a mall owned by Simon Property Group, where you find a Dick's Sporting Goods store;
You walk into the store and pick up a sweater made by Columbia Sportswear;
You then go to Foot Locker to get a pair of shoes
Then you sit down in the the food court with a sandwich from the Wendy's.
If you pay close attention, every day you come into direct contact with hundreds of publicly-listed companies.
Sometimes the connections are not obvious by name.
Do you know that VF Corporation (NYSE: VFC) is the owner of famous brands such as Wrangler, Lee Jeans, JanSport, The North Face, and Nautica?
Do you know that Darden Restaurants (NYSE: DRI) operates Olive Garden, Red Lobster, and LongHorn Steakhouse?
Do you know that Yum! Brands (NYSE: YUM) runs Taco Bell, KFC, and Pizza Hut?
Here is a list of publicly-traded companies the products and services of which college students regularly consume.
Pick a company that you are familiar with.
Become an "expert" on a company, its businesses, its economics, its markets, its competitions, and its industry.
You goal is to impress your classmates as an expert knowing every aspect of a business.
Focus on the business aspect of a company, and not its abstract EPS numbers .
Use the Cheat Sheet to guide you to the "value drivers" of a company.
You will get a better grade if I think I've learnt something from you.
And it is extremely unlikely that you will impress me with some advanced, complicated, financial concepts.
Most likely you will impress me by demonstrating your good business insights into an industry, a company, its businesses, and its products.