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Investment Management Club. Stock Pitching 101 - 2009. Agenda. Stock Picking Essentials Stock Pitch Competition - Rules and Key Dates Stock Pitching – Give it a try! Stock Pitching – Essentials Final Tips, Judges Comments Examples Q & A. Selecting A Stock.
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Investment Management Club Stock Pitching 101 - 2009
Agenda • Stock Picking Essentials • Stock Pitch Competition - Rules and Key Dates • Stock Pitching – Give it a try! • Stock Pitching – Essentials • Final Tips, Judges Comments • Examples • Q & A
Selecting A Stock Two Approaches – Top Down and Bottom Up Country – attractiveness, GDP upgrades, theme, point in cycle, structural change. Sector – strong growth drivers, apply 5 forces Stock – relative to global peer group Even a bottom up approach can address the industry and the economy, but the focus lies on the company. Getting stock ideas …… 3
Industry How attractive is the industry Margins Growth rate Industry structure (Porter’s 5 forces) Key drivers of the industry? Is the industry cyclical or secular? Outlook for the sector Company • How does your company make money? (What, how, who) • What is unique about your company / Competitive advantage • Cost advantage vs. Differentiation advantage • Company performance and comparison with the sector • Management – Is the business well managed? • If not what is changing…… • YOUR view on outlook of the company 4
What is the thesis? What drives the stock performance? (usually earnings…..) How does your outlook differ from the market’s? Street expectations vs. your expectations, WHY THE DIFFERENCE? Consensus EPS Net Earnings Upgrades Correlation ? 5
Financials Modelling (earnings and cash flows) helps to put thoughts in writing and check assumptions Industry growth rate – why? Company growth rate – why? Volume drivers Price drivers Profit growth – why? Cost drivers How capital intensive is the company? Pay attention to the “why” – don’t just use a big growth rate, Support any number you use with reasoning.. 6
Valuation How does the street value these stocks? (P/E, P/B etc…..) How has the market valued these companies in the past? Key valuation ratios? Implied DCF valuation. What does the stock price imply? Upside and downside Stowe, John D. CFA et al 7
A Few Final Tips…… Small cap often more interesting than large cap. More inefficiencies Easier to talk about and listen to an easy business model Stocks should have significant upside, at least 30-40% in 2-3 years or so Recognise and address the risks Try to have a story i.e. Nike of China, Tropicana of Brazil etc 8
Judge’s comments Have the presentations focus on their investment thesis - why will the stock outperform, what is the critical variable, fundamentals, valuation? The analysis should be more predictive and less historical based. Include a slide on the business model, i.e how does the company actually make money. I think this will help to understand the senstivities of the earnings and future cash flows to the key fundamental variables and would help all the candidates to understand and answer most of the questions we ask. Spend less time on Company description and background, spend more time on the investment thesis. There was too many facts and not enough analysis. Do more absolute valuation work as opposed to just relative to the peer group. 9
Stock Pitching: Rules • One page including valuation – using the template • Company must be a listed equity (I.e. no pre-IPO’s, funds, derivatives, bonds or commodities) with market capitalisation over $200 m • Stock must be liquid: 3 month daily avg. trading volume - USD 10m • Must be traded on one of following exchanges: • USA (NY stock exchange, NASDAQ, American Stock Exchange) • Canada (Toronto Stock Exchange, Canadian Venture Exchange) • Europe (LSE, Paris Bourse, Deutsche Bourse, Amsterdam Stock Exchange, Madrid Stock Exchange, Brussels Stock Exchange, Swiss Exchange, Stockholm Stock Exchange) • Asia (Australia Stock Exchange, Hong Kong Stock Exchange, Singapore Stock Exchange)
Stock Pitching: Timeline • Application Deadline Oct 18th 3pm; submit to imc@london.edu • Oct 23, Finalists announced • Oct 29, Stock Pitch competition • Format - 10 mins each (5 mins presentation + 5 mins Q&A) • Judges - (from Fidelity, Orbis, Wellington and alumni) • Alpha Challenge Participant to be picked from finalists.
Overview – Financial Services roles Financial Services Roles Sell Side Buy Side Investment Banking Mutual Funds Hedge Funds Private Equity IBD/M&A Sales & Trading Research Research Research 14
Stock Pitching –Why? A typical 30 minutes fund management job interview……. Q 1. So why fund management ? Q 2. Do you have a stock portfolio ? Q 3. Pitch a stock in your portfolio. Q 4. Pitch another stock in your portfolio. Q 5. Pitch another stock in your portfolio. Q 6. Pitch another stock in your portfolio. 15
It is as close as you get to being a fund manager :27/10/2008 -LBS student pitches Coach in the Stock Pitch Competition finals and Wins!28/10/2008-The LBS Student Investment Fund purchases 1000 shares of Coach @ $16.64/ share11/08/2009- Coach shares have rallied significantly higher than the pitch price target ($23.50) and the club decides to take profit18/08/2009- The LBS student investment fund sells 500 Coach shares @ $27.88/ share : 68% Absolute Return05/10/2009- The Student Investment Fund still owns 500 shares of Coach (current price : $32.22) 17
