Stock Pitch (2011)

Archived Information for Spring 2011. 
To be updated for Spring 2012 soon.

  • Excluded industries/sectors: 
    • Financial companies (banks, insurance companies, real estate investment trusts, etc).
    • Commodity companies (oil and gas, gold, copper, etc). 
    • Utitilies companies (electricity, water, gas, telecom, etc).
    • Biotech companies are hard to understand. Choose them at your own risk.
  • You can express both positive and negative views on the investment targets.
  • I suggest choosing companies the products and services of which you can manage to understand in depth
    • e.g. American Eagle Outfitters, McDonald, Starbucks, Viacom (MTV), ... 
    • It it unlikely that a 20-year-old finance major knows much about the biotech industry. 
    • No extra credits are given for tackling very difficult companies.
    • It is easier to for you to say something intelligent about products or services that you actually understand.
  • You cannot pick a company that is the main study subject of an FI414 case.
  • If more than one team picks the same company, the first-come-first-choice rule applies. 
    • This should encourage you to e-mail me your team's selection as early as possible.
  • The event is consisted of two parts: 
    • Presentation session, and written Research Report
  • The event takes place on three days: 3/21/2011 (Team 1,2,3), 3/23/2011 (Team 4, 5, 6, 7), 3/28/2011 (Team 8, 9, 10).
  • A research report including DCF valuation tables will be submitted much later (the deadline is 04/27/2011)
    • Recommended length: 7 pages of text plus any number of tables/charts. 
    • (Update: DCF valuation is not required any more, and the total length of the Report, including all tables and charts, is limited to 7 pages. There are no restrictions or prescriptions on font size, page layout, etc)
  • 25 minutes are allocated to each team. 
    • The presentation lasts about 20 minutes.
    • Q&A for the about 5 minutes.
  • In the presentation, you won't make a buy/sell/hold recommendation, or conduct a DCF analysis.
    • You will do that later only in the Research Report. (Update: DCF valuation not required any more)
    • This special arrangement can help you overcome the habitual "confirmation bias" (also known as "Monday-Morning-Quarterback")
      • Warren Buffett: "Chains of habit are too light to be felt until they are too heavy to be broken."
  • In the presentation, you should at least tell us:
    • The economics: How does this company make money? 
      • This is probably the most important part of your presentation.
      • Explain to us in plain language the company's business model. 
      • If it is too complicated to explain, this company is probably not really making money (think Bernard Madoff Ponzi scheme, Enron Scandal, etc). 
        • Pick a company with a simple business model and make your life easier. 
    • Market definition: What market is this company serving? 
      • Be specific. Product markets are "local"!
      • A snowboard maker doesn't compete with a surfboard maker, although both are sports equipment companies.
      • Whirlpool doesn't make TVs and doesn't compete with Sony.
      • Hawaii Airlines doesn't compete with Air France, although both are airlines.
    • Sizing the market: How large is the market? 
      • Use common senses and educated guesses
      • e.g. There are 100 million households in the U.S. If each household spends $3,000 /year dinning out, then the restaurant market is $300 billion.
    • Market potential: How fast do you expect this market to grow (decline) in the next five years and in the long term? 
      • Be realistic: diaper unit sales in the US are not going to grow more than 2% a year.
    • The industry competitive landscape: Who's the major competitors? Their market share?
      • Porter's 5-Forces Analysis: Competitive pressure from existing rivals and potential entrants, potential substitute products, bargaining power of suppliers and buyers, etc.
    • The strengths and weaknesses of this company vs. competitors
      • Do you think this company is going to grow faster or more slowly than the industry? (i.e. is it gaining or losing market shares). 
      • The company's "economic moat"
        • What barriers does this company have to fend off competitions?
        • For how long can this company sustain its current high profitability and high growth?
Research Report:
  • While the goal of the presentation is to inform, in the research report you also try to persuade.
  • Pay attention to the aesthetics of the report.
    • Make your reports look as professional as possible. Form is as important as content.
    • You can find in the Class Notes section some samples of real research reports from Wall Street firms.
  • Update: DCF model, target price, buy/sell/hold recommendation is not required any more
  • In the Research Report, you should explain to us the assumptions you make in your valuation model about the company's future.
    • Future revenue growth, profitability, capital investment requirement, etc. 
      • Back them up with convincing arguments. 
    • Anyone can come up with some random numbers and plug them into a DCF model.
      • Coming up with reasonable and plausible numbers is much harder.
    • Tell us what assumptions may justify the stock's current price.
      • That is, tell us the future business prospect of the company implied by its current market valuation.
    • Tell us what you think the more plausible assumptions should be.
      • That is, what future you are envisioning for the company.
  • Set a target price
    • We would like to know not only whether a stock is a good investment, but also how good it is.
    • Recommend BUY if the stock is >25% undervalued, SELL if >25% overvalued, and HOLD for stocks in between.
  • You are graded based on how well you understand the company and how convincing your arguments are
    • Demonstrate that you are the expert of a company and its industry.
  • In fact, actual future performance of the stocks you pick has no impact at all on your grade.
My advice for selecting stocks to pitch:
  • Look around you (home, mall, etc), identify a product or service you like, and find out whether the product/service is provided by a publicly-listed company.
    • For example, you are shopping in a mall owned by Simon Property Group, where you find a Dick's Sporting Goods store;
    • You walk into the store and pick up a sweater made by Columbia Sportswear;
    • You then go to Foot Locker to get a pair of shoes
    • Then you sit down in the the food court with a sandwich from the Wendy's.
    • If you pay close attention, every day you come into direct contact with hundreds of publicly-listed companies.
      • Sometimes the connections are not obvious by name.
        • Do you know that VF Corporation (NYSE: VFC) is the owner of famous brands such as Wrangler, Lee Jeans, JanSport, The North Face, and Nautica?
        • Do you know that Darden Restaurants (NYSE: DRI) operates Olive Garden, Red Lobster, and LongHorn Steakhouse? 
        • Do you know that Yum! Brands (NYSE: YUM) runs Taco Bell, KFC, and Pizza Hut?
      • Here is a list of publicly-traded companies the products and services of which college students regularly consume.
  • Pick a company that you are familiar with.
    • Become an "expert" on a company, its businesses, its economics, its markets, its competitions, and its industry.
    • You goal is to impress your classmates as an expert knowing every aspect of a business.
  • Focus on the business aspect of a company, and not its abstract EPS numbers .
  • Use the Cheat Sheet to guide you to the "value drivers" of a company.
  • You will get a better grade if I think I've learnt something from you. 
    • And it is extremely unlikely that you will impress me with some advanced, complicated, financial concepts.
    • Most likely you will impress me by demonstrating your good business insights into an industry, a company, its businesses, and its products.
Subpages (1): Research Report