general body meeting 02.03.11. mutual investment club of cornell agenda announcements portfolio...
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Mutual Investment Club of Cornell
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Agenda
Announcements Portfolio Overview by Terence Portfolio Review
Mutual Investment Club of Cornell
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Junior Analyst Applications
Description Work closely with senior analysts in
covering a sector Pitches to enhance our portfolio Pay close attention to news within your
sector
Apply online: cornell-micc.com/jobs/ Notifications will be made early next
week
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Future Events
MICC Newsletter MS GCM Information Session MS FX Dinner Trading Competition Wall St. Training Social Event
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Overview
Positions Price Shares Mkt Value1 week return YTD Return
Return since Beg. Of August Composition
Philip Morris International Inc. PM 57.69 30 1713 1.93% -1.44% 13.03% 6.30%
The Brink's Company BCO 27.84 70 1929.9 4.82% 3.57% 27.12% 7.10%
Boardwalk Pipeline Partners, LP BWP 32.14 70 2237.2 0.94% 3.24% 4.35% 8.23%
Cisco Systems, Inc. CSCO 21.63 83 1757.11 3.30% 6.92% -6.24% 6.46%Emdeon Inc. Class A Common
Stock EM 15.11 90 1361.7 1.41% 11.60% 20.88% 5.01%
General Growth Properties, Inc GGP 14.8 202 2963.34 1.37% -4.39% 6.32% 10.90%
SPDR Gold Trust (ETF) GLD 130.19 8 1042.88 -0.14% -6.15% 12.73% 3.84%
Howard Hughes Corp HHC 50.39 19 1006.05 -0.28% -7.41% N/A 3.70%
Hewlett-Packard Company HPQ 46.94 13 618.15 3.14% 11.50% 1.95% 2.27%Homex Development Corp.
(ADR) HXM 32.05 60 1968 5.01% -5.21% 7.99% 7.24%
iGo, Inc. IGOI 3.6 297 1078.11 2.56% -6.25% 115.57% 3.97%Occidental Petroleum
Corporation OXY 98.67 15 1457.7 5.10% 0.58% 26.61% 5.36%
The Procter & Gamble Company PG 62.83 21 1398.18 -2.12% -2.33% -5.45% 5.14%
ProShares Short 20+ Year Treasury ETF TBF 45.64 40 1806 1.56% 3.14% 6.02% 6.64%
Telefonica S.A. (ADR) TEF 25.71 20 505.6 3.84% 12.71% 12.71% 1.86%TeleCommunication Systems,
Inc. TSYS 4.19 220 952.6 3.97% -10.28% 16.71% 3.50%
Union Pacific Corporation UNP 94.35 36 3391.2 0.83% 1.82% 26.36% 12.47%
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Portfolio Composition
Real E
stat
e
Consu
mer
Goo
ds
Finan
cials
Macro
Media
Tech
nolo
gy
Ener
gy
Indu
stria
ls a
nd M
ater
ials
Health
care
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
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Cisco
Designs and sells IP-based networking products and communication devices, for corporate clients and individual consumers Primary revenue generators come from
sales of switches, advanced technologies, and services
$120B Market Cap, $94B EV after deduction of net cash, $15B Debt, $23B net cash CSCO Currently trading at $21.62,
15.86P/E
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Cisco
Defensive Posturing Stable share price performance Degree of maturity, difficult to move top
line Growth Areas
Mobile internet traffic growth Increased IT sales and corporate upgrades Other products (umi, videoconferencing,
etc) Innovation and Acquisition
$20B in acquisitions over past decade Focus on flexibility with market changes
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Cisco
Announcement of first dividend September 2010 announcement, 1-2%
dividend expected beginning in fiscal 2011 (ends July)
Broker recommendations Oppenheimer: upgrade to outperform
(Dec 2010), $23 target price Goldman Sachs: buy before earnings
announcement (Feb 9) Upcoming catalyst
Earnings call scheduled 4:30PM EST, Feb 9
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HP
Diversified technology company, leader in personal computer systems, imaging, and printing
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HP
Earnings Expectations Company believes earnings will exceed
analyst projections Forecasting EPS through October 2011 to
range from $5.05-$5.15, 14% YoY growth Market Position
Declining PC market share (-1% YoY) in the face of growth by Lenovo, Acer, others
Netbook sales hurt by tablet (ex: iPad) sales growth
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HP
WebOS Tablet Event Expected announcement of WebOS-based
tablet on Feb 9 Challenger to iPad, Motorola tablets
Earnings Call Q1 2011 earnings conference call, 5PM
EST, Feb 22 Broker Recommendations
Kaufman Brothers: raised earnings estimates for Q1 from 33.03B to $33.11B (Jan 25)
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iGo
Provider of products for the electronics industry, including energy-efficient AC adapters, DC adapters, and surge protectors
Sells products through retailers including RadioShack, and resellers such as Superior Communications and Ingram Micro
117.40M Market Cap
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iGo
Entry to new product areas CES 2011: introduced iGo Pocket
Projector, iGo KeyJuice for Apple Devices, iGo Laptop Cooling Pad, iGo noise-cancelling headphones
Products that will grow with mobile device sales
Partnership with Cisco September 2010 announced “Designed
for Flip” accessory program iGo to design and create accessories for
Cisco’s Flip Video cameras
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iGo
Earnings Projections 2010, iGo lost $0.03 per share 2011, expects earnings of $0.03 per share
Earnings Call Scheduled for March 10, 5PM EST
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TSYS
Develops and applies secure mobile technology, cloud computing services, local search, telematics
TCS infrastructure essential for E911 call routing
Two primary customer segments: commercial, government
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TSYS
Growth Areas Domestic demand forecasted to grow at
an average annual rate of 3.5% for the next 5 years
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TSYS
Broker Consensus 4 x ‘Strong Buy’, 1 x ‘Moderate Buy’, 4
‘Hold’ Valuation
Low P/E (9.88) compared to competitors (ex: Globecomm - 23.72, Comtech Telecomm - 11.52, ViaSat - 71.35)
Earnings Announcement Reported on Jan 25, results in-line with
consensus EPS estimates (-10.7%) 2011 Guidance: 9-11% EPS growth
Mutual Investment Club of Cornell
Emdeon Thesis and Key Debates (as of 10/27/10)
Buy 90 shares at $13.93 and hold for 1 to 2 years
Healthcare Reform is good for HIT Acquisitions are predicted positive
synergies Valuation supports undervaluation
thesis
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What is Emdeon?
Leading provider of medical revenue and payment cycle solutions (Revenue cycle management)
Connects payers and providers Improves efficiency of the US
healthcare system Take advantage of governments
movement towards a digital, computer run system
Mutual Investment Club of Cornell
State of Healthcare Industry
HC expenditures are a significant component of the US economy 16.2% of GDP in 2008; expected to grow
to $4.4 trillion, or 20% of GDP, in 2018 HC administrative costs totaled $360
billion in 2008 Healthcare is provided through a
fragmented industry that has historically underinvested in HIT
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Recent Legislation
American Recovery and Reinvestment Act Stimulus intends to create job, promote
investment, and increase consumer spending Cost of $787 billion
Patient Protection and Affordable Care Act New federal law mandating that at least 80
percent of premium revenue must be spent on medical services, not retained as profits or used to pay overhead
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HC Current Events
No current need to worry about a repeal of Healthcare Reform Law Unconstitutional? Senate to vote on healthcare repeal
amendment Sufficient votes?
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Conclusion
HOLD Thesis still intact Need to keep watch on what Congress
will do in the upcoming months Earning to be announced March 8th
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Boardwalk Pipeline Partners
Acquires and develops natural gas pipelines and storage facilities 14,200 miles of pipelines between 12
states 11 underground natural gas storage
facilities Principal sources of supply are regional
supply hubs and market centers in the Gulf Coast region
Provides infrastructure solutions to natural gas producers in the Eagle Ford Shale production area
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Boardwalk Pipeline Partners
Stable Cash Flows Raise distribution every quarter since their
IPO in ’05 Power Generation
Market/Environmental Factors Move from coal powered to natural gas
powered electricity generation will drive future gas volume growth
Diverse Customers Serves a mix of customers including
marketers, local distribution companies (LDCs), producers, electric power generators, interstate and intrastate pipelines, and direct industrial users.
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Boardwalk Pipeline Partners - Updates Boardwalk Announces $325 Million
Offering of Senior Notes by Its Texas Gas Subsidiary Primary purpose to repay borrowings
outstanding under its revolving credit facility
Remainder of net proceeds distributed to BWP to retirement of outstanding revolving credit and long term debt
Earnings Call – February 7th, 2011
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Boardwalk Pipeline Partners – BWP Current Share Price - $ 31.84
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Occidental Petroleum Corp.
Energy company specializing in the exploration and production of crude oil and natural gas through enhanced oil recovery, primarily in the United States, Latin America, and the Middle East
Company also manufactures chemicals and operates midstream assets including pipelines and carbon dioxide processing plants
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Divest its Argentine oil and gas operations for after-tax proceeds of approximately $2.5 billion to purchase new U.S. assets
Executed agreements to purchase oil and gas properties in TX and ND for about $3.2 billion
Acquire the remaining 50% joint venture interest in the Elk Hills Power Plant
Expects transactions to be completed no later than the end of the first quarter of 2011
Occidental Petroleum Corp. – Transactions
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Occidental Petroleum Corp. Q4 Earnings
Net income up 55% year-over-year Cash flow from operations up 60% year-over-
year Oil & Gas production up 5%
MENA Unrest - >25% of oil & gas production Tunisia & Egypt Joint venture opportunity with Abu Dhabi Gas
Development Company Emerging Markets
Strong upscale within emerging markets given the expected increase in demand for oil
Mutual Investment Club of Cornell
Procter & Gamble (PG)
The Procter & Gamble Company manufactures and markets consumer products in countries throughout the world.
The Company provides products in the laundry and cleaning, paper, beauty care, food and beverage, and health care segments.
Procter & Gamble's products are sold primarily through mass merchandisers, grocery stores, membership club stores, drug stores, and neighborhood stores.
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Mutual Investment Club of Cornell
Original Thesis
Portfolio of strong billion dollar brands Consumer preference for quality and
strong value in tough economic environment
Consistent strong performance throughout all markets
Trading at a discount due to fearful market sentiment despite stronger fundamentals
Low risk play on economic recovery
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Mutual Investment Club of Cornell
Updates
Q2 earnings fell 28% due to higher higher costs Costs of goods sold rose 6%; earnings of $1.11 a share, down from
$1.49 last year; PG reported core earnings of $1.13 a share (profit from continuing operations)
However, P&G reaffirmed expected organic sales growth of 4-6% P&G investing $1 billion over 5 years in China to develop research and
manufacturing centers closer to consumers Focusing on core product areas and divesting non-core businesses such
as pharmaceuticals Look for PG to beat analyst estimates and for the stock price to climb
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Philip Morris International (PM) International tobacco company spun off from the Altria Group in March
2008 World’s largest producer of tobacco products, holding 15.7% of global
market share excluding the United States Sells tobacco products in international markets, while Altria operates in
the US Brands include 7 of the world’s 10 largest: Marlboro, Philip Morris, Bond
Street, Chesterfield, Parliament, Lark A, etc.
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International Markets
While the US market is stagnant, strong emerging market growth will be a driver for growth as PM operates mainly in South America, Asia and Europe
Newly affluent customers in developing countries provide a growing customer base for the upscale product brands that PM offers, although PM also maintains three value brands (Bond Street, Red & White, Next)
Tobacco products provide steady cash flows
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Risks:Global economic environment and Health issues Health risk litigation hurts tobacco
companies’ ability to advertise and sell products easily
Economic downturns could easily adversely affect sales in all of PM’s markets
Raised dividends three times since the spinoff from Altria
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Union Pacific Corp (UNP)
Recommendation: Hold Thesis:
Expect demand of carriage to continue to increase with growth in US economy
Efficient method of transportation
Great business with a durable competitive advantage
Concern: Huge rise in price (50%)
over the past year
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Q4 Results
Strengths 44% increase in EPS, yoy 31% increase in operating income, yoy Increased consumer satisfaction (90%)
Weaknesses Q4 operating ratio rose 2% from Q3 Lack of management forecast of 2011 Business volume growth slowed to 9%
compared to 14% in Q3 and 18% in Q2
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MICC Position
Currently own 36 shares ~ $3350 Largest position in the portfolio ~
12.5% of stock
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Events
Recent rally Recent deals Eased tensions in sovereign debt crisis
Expansion into mobile market in developing countries JV with China UNICOM Awarded spectrum space in Costa Rica
JV with MasterCard for mobile financial solutions in LatAm
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Pros and Cons
Good
•Diversified telecom exposure across geographic markets
•Stellar management team relative to competitors
•Heavy infrastructure spending and JVs within its markets – future growth
Bad
•Revenue growth has been shadowed by A/R growth – need to investigate
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Portfolio Recommdations
Hold stock, buy out-of-money calls if stock continues rally
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Homex
November 30th Guidance:• Revenue growth from 13 to 16% in 2011• EBITDA at 21-22% margin• Continued reliance on low income housing in Mexico
Revenue Share
RSI: Multi-year low
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General Growth Properties
January 25th Dividend:• 38 cents per share (2.6% return)• 2010 dividend, similar dividend for 2011
Dividend PlaysRYN: 3.7% Beta 1.1OTTR: 5.3% Beta 1.18MO: 6.3% Beta 0.46
Beta: 4.00
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Howard Hughes Corporation
Wonderful websiteAbsolutely no news
Pershing SquareWilliam Ackman• Dividend focus
Insider buying triggering rapid rise
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Brinks Company (BCO)
Business Areas: Secure Transportation Cash Handling Security Services NOT Home Security
Operates in 50 Countries Roughly break even investment
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4Q 2010 Earnings
8% organic growth and acquisitions Strong performance in Latin America,
Europe & Asia Lagging performance in North Ameirca
Margin rates up to 9.7% from 6.6% Acquisitions in Latin America and
Canada
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Brinks Company (BCO)
Still stands to improve from a growing global economy
Exposure to Eurozone countries is troubling
Still somewhat vulnerable to currency fluctuations
Recommend holding position
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SPDR Gold Trust (GLD)
As economies rebound, and markets become less volatile, Gold will decrease from its recent highs
Technicals suggest further drop Better opportunities with other metals
regardless of how the economy trends (i.e. silver)
Future inflation could send Gold higher Recommend selling full position, and
the macro team will look into whether silver (or other metals) make sense
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Proshares Short 20+ Year Treasury (TBF)
Treasury prices have hit their peak and are trending downward
In 2011, speculation of rate increases by the Fed, will send Treasury yields higher
No QE3 ETF tracks daily changes; not efficient
in the long run Recommend no action on the position
Look into interest rate options