kelloggstockpitchguide

©2007LindaVincent11KelloggSchoolofManagementNorthwesternUniversityInvestmentManagementPrimer:StockPitchingforSuccessInvestmentManagementClubNovember8,20072PitchingaStock_____________________________________________________________________________________________________________________________•Whatarethe“types”ofstockpitches?–Jobinterview–Classroom–Professional(e.g.,toportfoliomanager)–Yourmoney•Whataretherespectivegoals?–Getthejob–Getthe‘A’–Gettheinvestment–NeedIarticulate??©2007LindaVincent23PitchingaStock_____________________________________________________________________________________________________________________________•Whataretherecommendations?–Buythestock•Stockisunderpriced•Targetpriceandestimatedtimeframe–Holdthestock•Stockfairlypriced•Expectcontinued“market”returns–Sellthestock•Stockoverpriced–Shortthestock4PitchingaStock_____________________________________________________________________________________________________________________________•Whatisshortingastock?–Sellastockthatyoudonotown–Bettingthesharepricewillgodown–“Borrow”thestockfromthebroker–Collateralizetheposition(50%)–Maximumgainontrade?–Maximumlossontrade?•Targetpriceandtimeframe•Stoploss©2007LindaVincent35PitchingaStock_____________________________________________________________________________________________________________________________•Howtofindastocktopitch–Read–Read–Read•Personalinterest/experience–Somethingyouknow–Somethingyouhavelearnedabout6PitchingaStock_____________________________________________________________________________________________________________________________•Pitchingastockforajobinterview–Thestoryiskey•Growth•Assetplay•Turnaround•Other……–Makethepitchabuyorasell(short)•Why?–Keepitsimpleandshort©2007LindaVincent47PitchingaStock_____________________________________________________________________________________________________________________________•Pitchingastockforaclassorprofessionally–Bothstoryandanalysisarekey–Moreindepthanalysisreviewed•Byprofessororportfoliomanager–Moststocksarefairlypriced•Why?ÎMoststocksareahold8PitchingaStock_____________________________________________________________________________________________________________________________•“Pitchingastock”foryourownportfolio(yourmoney)–Theanalysisiskey(drivenbythestory)–Moststocksarefairlypriced–Keyistounderstandtherisks(andyourriskpreferences)–Targetpricesforbuysandshorts©2007LindaVincent59PitchingaStock–TheAnalysis_____________________________________________________________________________________________________________________________•Typesofvaluationanalysis–Technical–Fundamental–Relative–Comparabletransactions10TechnicalAnalysis_____________________________________________________________________________________________________________________________TechnicalAnalysis–ExampleJune23©2007LindaVincent611FundamentalAnalysis___________________________________________________________________________________________________________________________________________Fivesteps:1)Overviewoffirmanditsstrategies2)Evaluatestructureofindustry3)Evaluatefirm’seconomicposition4)Predictfuturecourseoffirm5)ValuationoffirmGoal:Estimateintrinsicvalueofthefirm.12FundamentalAnalysis___________________________________________________________________________________________________________________________________________Whatisintrinsicvalueofthefirm?PerWarrenBuffettofBerkshireHathaway:Intrinsicvalueisanall-importantconceptthatofferstheonlylogicalapproachtoevaluatinginvestments:itissimplythediscountedvalueofthecashthatcanbetakenoutofabusinessduringitsremaininglife.©2007LindaVincent7131)OverviewofFirmanditsStrategies___________________________________________________________________________________________________________________________________________A)Keylinesofbusiness-Numberoflinesofbusiness?-Isthefirmdiversified?B)Majorproducts/services-Characteristicsofproducts/services•Commodity?•Specialized,quality?C)Primarymarkets-Numberofmajorcustomers?-Dependenceonafewcustomers?-Diversifiedmarkets?141)OverviewofFirmanditsStrategies___________________________________________________________________________________________________________________________________________D)Ageoffirm-Firm’seconomiclifecycle[Startup,emerginggrowth,establishedgrowth,maturity,decline]E)Currentoperatingstrategy-Growth(organicorviaacquisition)-Restructuring-Downsizing-Diversifying-SteadystateF)Management(quality,strengths,experience,reputation)G)Corporategovernance(quality,redflags)©2007LindaVincent8152)EvaluateStructureofIndustry____________________________________________________________________________________________________________________________________________A)Numberoffirmsandconcentration-Whatpercentageofindustrysalescapturedbyindustryleaders?B)Levelofcompetitiveness-Barrierstoentry?-Relativemarketsharesoffirmsinindustry?-Competition-domestic,foreign,both?-Characteristicsofmajorcompetitors?•Strengths,weaknesses,strategies162)EvaluateStructureofIndustry____________________