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Stock Pitch 101

Asset Management Club

Sept 23, 2008

Agenda
How to screw up stock pitch interviews?
How makes a good stock pitch?
Where are the resource?
Introduction of Bloomberg Terminal

Ways to Screw up Stock Pitch Interviews

Example 1 : BUY APPLE (AAPL)


[Jan 2007] AAPL is a BUY because Apple is going to launch IPhone and everyone likes it!
Apple announced date to
launch IPhone

On Campus Interviews

IPhone launched

Problem 1: No Value Added


Solution: Avoid Big Cap, popular stock
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Example 2: SELL Hershey (HSY)


[Jan 2008] HSY deserves a SELL because the price for sugar increased, and therefore its near term profit
margin will be further squeezed.
Recommendation

Historical Sugar Price

Problem 2: No Firm-Specific Catalyst


Solution: Dig deep into the companys unique strategy:
Porters five forces
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Example 3: BUY Las Vegas Sands (LVS)


[Jan 2007] LVS is a BUY because it was chosen to build Singapore Casino.

LVS won Singapore Casino bid. The casino will open in 2009.
Recommendation

Problem 3: Past events should have been priced into the stock
Solution: Explain the difference between your analysis
and market consensus
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Example 4: BUY Exxon Mobil (XOM)


[Jan 2008] XOM is a BUY because oil price will continue increasing.
Recommendation

Historical Oil Price

Problem 4: No Catalyst! Why Now?


Solution: Always start with a catalyst.

Example 5: BUY Yahoo (YHOO)


[Mar 2008] BUY Yahoo. Since Microsoft needs Yahoos search share desperately, it will likely increase the
price to acquire YHOO.
Microsoft proposed acquisition
of Yahoo at a price of $31

YHOO sought to restart merger talks with AOL

Recommendation

Problem 5: Need to consider all possible outcomes


Solution: Perform a scenario analysis.
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What makes a good stock pitch?

Step 1: Identify the Target


Finding the Catalyst is the key

Do
Top Down approach (screening software)
Bottom up approach / Pick the company/industry you are familiar with
Look for Catalyst

Dont
Get the stock pitch ideas from sell side reports
Pitch a company without catalyst

Step 2: Company Research Whats Important


Understand the industry and competition. Understand the companys revenue drivers. Identify the trend and
find out the reason.

Understand the industry and competition: what is growth potential?


Companys operation Major revenue sources? What is its market share? :
Whether catalyst is relevant and significant?
Companys competitive advantages - Porters five forces (Barriers to Entry/
Bargaining Power with Buyers & Suppliers/ Substitute Products or Services/
Intense Competition from Rivals) : Whether performance is sustainable?
Companys position: new player? Leader? Gaining/Losing market share?
Identify the trend and understand why: profit margin decline? Sales drop?
Lower free cash flow? Whether the trend will persist?
The quality of the management: New or old? Credible?

Step 3: Valuation
Valuation will make our break your stock pitch. You need to give a target price along with your BUY/SELL
recommendation

Three ways to value a stock

Comparables analysis - Who are the companys closest competitors & what
are their respective valuations (P/E, EV/Sales, EV/EBITDA, P/B, P/CF)

Historical Valuations

DCF and/or Earnings Model

Other things that make a good stock pitch


Good stock pitch provides new value, tells an interesting story and makes people think.

Where are you differentiated from the market view? What is the market
focused on that may not be important? What are you focused on that the
market may be overlooking?

Fundamental valuation has a 12 -18 month focus. But it is also important to


understand the how the inefficiency in the short term might influence the stock
price.

Dont forget about risks.

Where are the resource?

Where to find information for company/stock?


All Can Be Found on Fuqua Library Website under the Databases tab

First Call Historical Database via WRDS (earnings estimates)


LexisNexis (news articles)
MarketLine (company research)
OneSource (company data-segments, financials)
Reuters Research on Demand (sell-side reports)
Thomson Research (10K, 10Q, Annual Reports)
ValueLine (screens to find ideas)
Zacks.com (market research, news, screens)
Bloomberg Terminal (in Fuqua Library)

Where to find information for sector/industry?


All Can Be Found on Fuqua Library Website under the Databases tab

MarketLine (Porters Five Forces Analysis, industry analysis, historical data)

Standard & Poors NetAdvantage (BEST source for industry/sector


information and data, How to Analyze that Sector, Whats important, What
Financial Information is Important, etc.)

Mintel Market Intelligence

Where to know more about stock pitch


Past year materials are all kept in the AMC network folder

To access the folder: On Windows, press the Start button, and select Run...
and paste the following into the Open: box in the Run window.
\\galaxy.fuqua.duke.edu\AMC-2010$
You can also find the link under the fuquaworld team tool
Open the folder 2008-2009/Stock Pitches-Where to Start
Fundamental Equity Analysis A Primer
Industry Analysis A Primer
2 folders with Previous Years Stock Pitches

Takeaways
Three skills to demonstrate in an equity research interview: Analyzing, Stocking picking and Marketing

Analytical skill: accounting, strategy, marketing, economics, statistics

Stock picking skill: think outside the box for the catalyst. Add values to your
investors/interviews/listeners

Marketing skill: Show you conviction through delivering your stock pitch. Concise
and Persuasive.

Bloomberg Demonstration