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Top-Down Stock Valuation Proposal

Top-Down Stock Valuation Proposal. Presented by Paul Kadota to the Maxidigm Investment Club June 15, 2001. Three-Step Valuation Process. Economic Analysis Determine what countries and allocations in stocks, fixed income and cash. 1. Industry Analysis Determine what industries to be in

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Top-Down Stock Valuation Proposal

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  1. Top-Down Stock Valuation Proposal Presented by Paul Kadota to the Maxidigm Investment Club June 15, 2001

  2. Three-Step Valuation Process Economic Analysis Determine what countries and allocations in stocks, fixed income and cash 1 Industry Analysis Determine what industries to be in within your stock allocation 2 Company and Stock Analysis Determine what companies should prosper and stocks that are undervalued 3

  3. Stock Market and Business Cycles Stock Market Leads Economic Cycle by 8 months on peaks Stock Market Leads Economic Cycle by 5 months on troughs

  4. PK’s Investment Wheel Top of Economic Cycle Basic Industries Consumer Staples Capital Goods Financials Brokerages Consumer Durables Bottom

  5. Investors anticipate end of recession Expect increased housing starts Expect loan demand to recover Expect increased trading activity Expect increased IPO and underwriting activity Increased overall stock market activity Financials & Brokerages Buy before bottom of economic cycle

  6. Durables include cars, personal computers, refrigerators, home electronics Revived with increased consumer confidence and income Businesses increase spending where there’s visible signs of economic recovery Heavy equipment, machine & tool die makers, airplane manufacturers Consumer Durables and Capital Goods Buy after bottom of economic cycle

  7. Inflation looms near top of economic cycle Material extraction less affected by inflation; less impact on earnings Basic materials industries include oil, gold, aluminum, and timber Basic Industries Buy near top of economic cycle

  8. Irrespective of economy, must eat, drink, be healthy “Defensive” industries Consumer staples include: food, drugs, pharmaceuticals, beverages Consumer Staples Buy going into a recession

  9. Sensitivity to Economy More Sensitive More Sensitive Less Sensitive More Sensitive More Sensitive

  10. Portfolio & Potentials Sell Line TGX BBD CMRC ARBA ADCT FLEX IGI NOK INTC AMD Buy Line

  11. Summary • Top - down approach recommended by AIMR • Economic Analysis • Industry Analysis • Company and Stock Analysis • Markets lead economic cycle by 4-12 months • Could be nearing economic bottom Q3 2001 through Q2 2002 • Buy Financials and Consumer Non-Durables • Begin studying Consumer Durables

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