Investment Strategy

6조
정형근 이창인 강희우
홍승재 심규호 김채린
유정 이소승 이주성
서승희 손윤석
01 Intro

Economic Logic Behind

Investment
Subprime Mortgage and 2008 Financial Crisis
2008.12
2008. US economy is in - Americans losses 8.3 Trillion
recession infects the credit $ which is more than a
market quarter of their net worth

2007. Housing 2007. 7 2008. 9

Crisis deepens Bear Stearns liquidates two
hedge fund that invested in
risky securities
Importance of Internal Value Arise
- Bear Stearns’s 30Billion $ assets are sold
BOA purchase Merrill Lynch for 50 Billion$
- Lehman Brothers files for bankruptcy
- AIG accepts 85Billion $ bailout losing 80%
of the company stake

Changes made after or during the financial crisis

- Stock Market started to concentrate on the stocks that is
relevantly less exposed to the market risk.

- Ratio like PBR and BPS that indicates the internal value of
the stock are considered important.
01 Intro

Economic Logic Behind

Investment
• As we’ve shown in the earlier slide, the stock market has focused on the importance
of internal values after the subprime mortgage and the financial crisis. Therefore,
ratios like PBR and BPS became important standards when deciding the investment
portfolio.

• Then, the market experienced growth and a highly profitable stock became
important. Therefore, ratios that can predict profitability, like PER, EV/EVITDA, and
ROE became the new standard.

• The question is: Considering today’s market condition, which is experiencing low
growth and uncertainty, what aspects should we focus on when deciding investment
portfolio?
01 Intro

Things to consider before Goal Setting

1. To solve the low growth
issue, invest in stock with
high growth.
2. To solve the uncertainty
issue, invest in stock with
financial stability.
3. In the mid-to-long-term
point of view, invest in
stock that is undervalued
to have high rate of
return.

Our Main Goal

GOAL: Generate stable profit during the low-growth period.

Investment Strategy: Earn high rate of return in mid-to-long-term by investing in

undervalued stock that is expected to have high growth and financial stability so that we
can invest successfully during the low-growth period.
02 Several Decisions

1. Exclude Financial companies

Reason: We are going to consider ‘liability ratio’ as our decision ratio. Since most of the
financial companies have high liability rate, there will be a utility issue when including
the liability ratio.

2. Exclude Companies with Non-December Fiscal Month

Reason: We have to compare and contrast different companies. But, since most of the
companies audit on the end of December, we have decided to exclude companies that
audit in June in order to facilitate our analysis.
03 Ratios: PEG and PCR

1. PEG

• We can use PEG to figure out the company’s growth and whether a company is
undervalued

• Invest in companies that is expected to have high growth but is currently

undervalued by investing in companies with low PEG, which is calculated by dividing
the PER by expected EPS growth rate

• Limitation: Prediction of the EPS growth rate is extremely important in calculating

PEG. However, by the given data, we had to predict the growth rate of EPS

• Therefore, we assumed that future growth rate is directly related to past growth
rate
03 Ratios: PEG and PCR

2. PCR

• We can use PCR to figure out company’s growth, undervaluation issue, and financial
stability

• Invest in companies that is expected to have high growth potential and financial
stability, but is undervalued by investing in companies with low PCR, which is
calculated by dividing the stock price by CPS

Conclusion: steps we went through

① Choose companies with:

1) PEG that is lower than 0.5
2) PCR that is close to 0 (both positive and negative)
② Exclude companies whose transaction is suspended
③ Choose top 30 companies
04 Pros and Cons
Pros
• We can apply industry growth rate ,
individual companies’ growth rate in
the decision making process , and at
the same time apply financial
stability, which can support growth.
Cons
• We need more data and tests to
increase the accuracy of EPS growth
rate (denominator of PEG). We used
4 EPS growth rates. Normally, FEPS is
used when calculating the PEG.
However, this, as well, can be
inaccurate.
• Earnings growth is not the only thing
the market cares about. Revenue
growth, cash flow, dividends, debt,
and many other factors are also
important to value.
Thank you