Friday March 28th, 2014
Lafayette College Investment ClubLafayette College Investment ClubLafayette College Investment ClubLafayette 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
• 1) Market Update – Ryan McCormick
• 2) Portfolio Update – Tim Simon
• 3) Educational Piece – Craig Scheuerle
• 4) CLOROX – Sell pitch by Angel Stoychev
3/28/2014
By: Ryan McCormick
Market Update
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
• 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
Investment Banking
Sales and Trading
Private Wealth Management
• Individuals• Pension Funds• Insurance Companies• Asset Managers• Corporate Treasuries• Sovereign Wealth
Funds
• Corporations• Governments• Municipalities
Providers of CapitalInvestment
BankingInvestment
Banking
Investment Banks serve as intermediaries between providers and users of capital
Chinese Wall
Sales & Trading
Research
Users of capital
Public sidePrivate side
Strategic advisorySecurities underwriting
IB Overview
A B
AdvisoryCapital Markets
• Equity capital-raisingo Initial public offerings (IPOs)o Follow-on offeringso Equity-linked (convertible)
• Debt capital-raisingo High-grade or investment gradeo High-yieldo Syndicated loanso Tax-exempt
Overview of Investment Banking
• Mergers & Acquisitionso Buysideo Sellsideo Spin-offs / Splitoffs / Carve-outso Hostile defenseo Hostile takeovers / proxy fightso Joint Ventures
• Restructuring• Ratings
Execution
• Financial Analysis• Communication
o Management, Board of Directorso Internal Committees
• Identify Potential Investors• Negotiation / Structuring Transactions• Due Diligence• Documentation
Origination
• 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 Solvingo Strategic Alternativeso Capital Raisingo Optimizing Capital Structureo Risk Management, Dividend Policy
• Assessment Of Opportunities
What Does An Investment Banker Do?
Investment Banking Groups
Product
• M&A• Corporate Finance
Industry Coverage
• Consumer & Retail
• Healthcare• Technology• Media & Telecom• Industrials• Natural Resources• Real Estate
Capital Markets
• Equity Capital Markets
• Debt Capital Markets
• Tax-exempt• Leveraged
Finance• Securitized
Products
“Markets” “Technical”
Investment Banking Competitive Landscape
Bulge bracket
Boutique
Middle Market
Low HighCapabilities
Sell Clorox
By: Angel Stoychev
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
• 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 Liabilities Stockholder Equity4,311,000 4,165,000 146,000
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