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General Body Meeting

9/29/2010. General Body Meeting. Agenda. Investment ideas Industrials and basic materials Energy Media Healthcare Macro Brinks Update. Announcements. Another reminder to talk to Miles Moen if you’d like to write for our newsletter

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General Body Meeting

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  1. 9/29/2010 General Body Meeting

  2. Agenda • Investment ideas • Industrials and basic materials • Energy • Media • Healthcare • Macro • Brinks Update

  3. Announcements • Another reminder to talk to Miles Moen if you’d like to write for our newsletter • If you have not approached Melody to purchase shares by next Wednesday, you will no longer be taking part in managing the fund

  4. Current conviction list • Real Estate • American Campus Communities • Digital Realty Trust • Consumer • Archer Daniels Midland Company • Agrium Inc. • Financials • Alliance Bernstein • White River Capital

  5. Industrials and Basic Materials

  6. Sell GLD • Fund already made gain • Weak fundamental justification for recent increase • Exhibiting bubble like behavior

  7. Bucyrus International (BUCY) Businesses • Manufactures mining equipment for extraction of coal, copper, oil sands, iron ore, and other earthly minerals • Production facilities in Australia, China, Germany, Poland and the United States, and service and sales centers in Australia, Brazil, Canada, Chile, China, England, India, Mexico, Peru, Russia, South Africa and the United States • Trading at $71.37 (as of close yesterday) • 52 week: $74.16-$31.78

  8. Bucyrus International (BUCY) Strengths • Projected kick up in equipment spending in the next 5-10yrs, both to meet the rising demand for commodities and to replace outdated machines • BUCY and competitor Joy own 80% of mining equipment industry • Highly diversified both in product lines and geographically • 70% sales outside US • Expanded aftermarket sales - service and support of existing equipmentto protect revenue stream from cyclicality • 52% of sales revenue from original equipment, 48% from aftermarket services and goods

  9. Bucyrus International (BUCY) Weaknesses • Demand for BUCY’s equipment is affected by prices of commodities (i.e. price of oil and gold) • Somewhat coal reliant • 66% sales from coal related equipment (13% iron ore, 10% copper) • Competitive pressure from small regional companies • Tends to be more for repair services and replacement units than new equipment • Political legislation that reduces the use of coal usage because of its adverse environmental impacts

  10. Thompson Creek Metals Company Inc. (TC) • Current Price:$11.01 52Week: 8.01-15.20 • Vertically integrated Molybdenum company • Molybdenum: • Strengthening Agent • Corrosion Resistance • 60% of US production used as an alloy in stainless and alloy steels • Also used in tools and in super alloys

  11. Thompson Creek Metals Company Inc. (TC) • Q2 Net Income: $126.5mil vs -$86.5mil Q4 ’09 • Gross Margin: 44% vs 28% for industry • Operating Margin: 26% vs 1% for industry • Forward P/e: ~7.2

  12. Thompson Creek Metals Company Inc. (TC) • Significant Growth Opportunies • Court recently approved acquisition of Terrane Metals Corp. • Diversifies company into Copper and Gold (as well as increasing molybdenum production) • 90million pounds Copper; 260,000 oz. Gold produced by 2013

  13. China Agritech, Inc. (CAGC) • Chinese Organic Fertilizer producer • Why I love Agritech? • Lot of people in China! • Declining arable land • Highly subsidized by the government • Year-over-year revenue growth of 109%, gross profit growth of 90% • Carlyle Group has recently invested in Agritech

  14. China Agritech, Inc. (CAGC) Recently Oversold

  15. Energy

  16. Occidental Petroleum • Oil and Gas Producer • Small chemicals business • Onshore Operations • USA (concentrated in Southwest), Middle East, South America • Market Cap: 60.9B • Revenue (ttm): 18.18B • D/E Ratio 8.19%

  17. OXY - Strengths • Oil Correlation • Strong Balance Sheet • Long term production growth (Plans for CapEx expansion) • Very little long term debt • No offshore exposure • Acquired Phibro (Citi’s commodities division) early 2010

  18. OXY - Risks • Oil Correlation • Average valuation ratios • P/E 15.2, Industry avg. 15.4 • Price/Book 2.0, avg 2.0 • Dividend Yield 1.9%, avg 1.8% • Regulatory Risk • Cap and Trade, etc. • Geopolitical Risk • 29% Middle East and North Africa

  19. Noble Corporation (NE) • Switzerland-based company that provides offshore contract drilling services for the oil and gas industry worldwide • Labor contract drilling services; engineering and consulting services

  20. Noble Corp. Financials • Revenues: $3.64bn FY09 (+5.6% YOY) • EPS reached $6.42 (+10.5% YOY) • Record cash flows from operations: $1.93 bn FY09 • Lowest capital-to-debt ratio in 5 years: 0.10 • EPS: $5.98 (ttm)

  21. Noble Corp Stock Price (Last 6 Mo.) $33.67

  22. Media

  23. Telecom/MediaTelefonica (NYSE:TEF) ShashankSamala Andrew Sung

  24. AMX/Telemax International • Leading provider of wireless telecommunications in Mexico. • Acquired 100% Telemax International for 22% premium this year • Telemax is second largest mobile operator in Brazil, but AMX’s valuation for next year in Brazil is offset by elimination of inter-company transaction revenues and premium paid Telefonica is better bet for Brazil’s mobile market growth

  25. Brazil Snapshot – Telecom Sector • Brazillian telecom market is 5th largest in the world; • Brazil is 10th largest economy • GDP: US$ 1.5 Trillion (2008)

  26. Telefonica • Provides fixed and mobile telephone services primarily in Spain, rest of Europe, and Latin America • Currently focused on Brazil ~ emerging market • Entered into Brazillian market in 1998 • Battle for Brazillian Mobile Market • Announced agreement for Portugal Telecom to sell its stake in Vivo to Telefonica for EUR7.5 billion (7/28/10), making it the largest mobile operator in Brazil • Market Cap: 112.27B Last Trade: 74.50 • Div & Yield: 3.94 (5.50 %) P/E (ttm): 10.47

  27. Why Telefonica • Revenues market-share (12/09): • Oi: 32%, Telefonica + Vivo: 32%, Claro + Net + Embratel: 22%, TIM: 12% • National Market Share - Mobile (Subscribers): • Telefonica30%, TelmexInternatioal/AMX 25%, TIM 24%, Oi 21% Whereas fixed telecom revenues have grown at an average of 7.6% annually, mobile revenues have reached a growth rate of 17.0% per year between 2002 and 2009.

  28. Why Telefonica • Positives: • Potential to increase current market share in Brazil • Mobile internet boom (only 8% of mobile users currently have the capability and internet penetration rate only 34%) • Concerns: • Exposure to Europe markets • More competition in broadband • Fixed lines matured

  29. Baidu.com, Inc. ADR (NASDAQ: BIDU) Melody Xie, Alex Friedman

  30. Baidu.com, Inc. (ADR) NASDAQ -BIDU • Company Overview • Chinese-language search platform • web search, MP3 search, e-commerce, etc. • Online Marketing Services • Uses Phoenix Nest (similar to Google Ad Words) • Revenue Model • Revenue = traffic x coverage x click-through rate x CPC • Traffic is number of search queries • Coverage is % of result pages with ads/ # of ads per page • Click-through rate depends on user behavior & Baidu Algorithm • CPC is the cost per click

  31. Baidu.com, Inc. (ADR) NASDAQ -BIDU Stock Overview • Price: 102.00 - Market Cap: 35.5B - EPS: 0.96, Volume: 22,145,938 – 52wk Range: 35.50 to107.19 Stock Trends ( ) • Stock split in May 2010 ($714.17 to $71.42) • Google Controversy with China • Internet users increase in China • Expected to double in size over the next 5 years • Sales Outlook

  32. Baidu.com, Inc. (ADR) NASDAQ -BIDU

  33. Baidu.com, Inc. (ADR) NASDAQ -BIDU • Risks • High P/E Ratio = 106.51…Overvalued? • Beijing lessening restrictions to foreign companies • Possible increase in competition • Volatility of Chinese stocks

  34. Healthcare

  35. Healthcare: Industry Overview • ObamaCare has designated much money in healthcare IT reform • 2008: hospitals had avg operating margin: 4.3% and 34% were operating in the red • Inefficiencies across the payer/hospital spectrum • Healthcare spend is projected to grow from 16.6% of GDP to 4.4 trillion by 2018 • About 10% of US population expected to join government plan for insurance > increased supply utilization

  36. Portfolio Idea: MedAssets, Inc (MDAS) • Healthcare IT company focused on improving efficiencies in hospitals only • Two businesses: Revenue Cycle Management, Supply Management • Third largest GPO • Biggest range of products in the business for hospitals

  37. Recent Facts • Lower end of 52 week range • Of comps, AH and EM, best P/E • Just acquired The Broadlane Group for its supply chain management business • New projects, including Stamford health as well cashing in revenue stream from current big projects- Texas Purchasing Coalition • Both segments up 13% in revenue YoY

  38. Portfolio Idea: Celgene (CELG) • Biotech company focused on cancer drugs • Strong performance with marketed drugs (Revlimid for myeloma up 15% QoQ) • Recently acquired AbraxisBioScience (ABII) • Several catalysts over the next year, with the biggest driver being Abraxane • 2Q revenue beat consensus by 4%, up YoY 35.8%

  39. Macro

  40. Macro-economy • No big movements in markets • No double dip or V-shaped recovery • Due to sustained high unemployment • Take time to de-leverage (households, firms, nations) • Credit markets aren’t at pre-crash levels • Play this in 2 ways

  41. Macro-economy • Buy High Dividend Stocks • Get the yield from dividend • Also, tend to be safer (offer some downside protection) • Examples: • Eli Lily (pharmaceuticals) • Pengrowth Energy Trust (Canadian oil and natural gas) • Proctor and Gamble, J & J (Consumers)

  42. Macro-economy • Long defensive stocks and short cyclical stocks • Margins aren’t that big and get killed on downswing • Earn solid gains with steady or decreasing market • Lose potential big gains on market upswings • Example: • Long: Pepsi, J & J, Wal-Mart • Short: FedEx, Alcoa, Ford, Morgan Stanley

  43. Macro-economy • FedEx

  44. Macro-economy • Ford

  45. Macro-economy • Morgan Stanley

  46. Macro-economy • Long the RMB • US accused the Chinese government of artificially devaluing • Keeps Chinese exports cheap relative to USD • Created massive trade deficit between US and China • China will capitulate and gradually allow RMB to appreciate • Potential trade war?

  47. Macro-economy • Artificial devaluing

  48. Macro-economy • Did we miss it? • Some appreciation but general response to weaker USD and not due to specific pressure

  49. Brinks and Co.

  50. Brinks Update • Original Thesis: A series of unfortunate events, caused in part by Brink’s sale of its home security division, created an undervalued company. • Long term opportunity • Sale of home security division in 2008 • Changes margins, revenue, operating income • Also, economic turmoil has contributed to mispricing • What happened? • In short the slumping economy continued to hurt Brinks

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