Information Technology
Stock Presentation
Finance 724/824
SIM Class
Summer 2009
Russell Kolmin
Zachary McAllister
Paul Melko
Mahavir Sanghavi
Daniel Schuerman
Agenda
•
•
•
•
•
•
•
Agenda
Current Holdings
Sector Recommendation
Recommendation
An Omen about Oracle
A Bite of Apple
Into the Big Blue
Recommendation
SIM Portfolio Composition
SIM Portfolio Composition
S&P 500
Weight
SIM Weight
+/-
9.11%
7.19%
-1.92%
Consumer Staples
11.81%
11.65%
-0.16%
Energy
12.04%
10.74%
-1.31%
Financials
13.86%
8.93%
-4.93%
Health Care
13.73%
13.30%
-0.43%
Industrials
9.98%
12.37%
2.39%
IT Current
18.72%
20.41%
1.69%
IT Proposed
18.72%
19.72%
1.00%
Materials
3.40%
4.98%
2%
Telecommunication Services
3.41%
3.39%
-0.02%
Utilities
3.94%
3.61%
-0.34%
Consumer Discretionary
Sector recommendation:
Reduce IT holdings by 69
basis points.
SIM Weighting Relative S&P
SIM Weightings Relative S&P 500
Relative Weightings of SIM vs. S&P 500
Utilities
Telecommunication Services
Materials
IT Proposed
IT Current
Industrials
Health Care
Financials
Energy
Consumer Staples
Consumer Discretionary
-6%
-4%
-2%
0%
2%
4%
IT Recommendation
SIM Portfolio Composition
Security
Apple Inc.
Hewlett Packard Co.
Intel Corp.
Microsoft Corp.
NCR Corp
Oracle Corp
IBM
Ticker
AAPL
HPQ
INTC
MSFT
NCR
ORCL
IBM
Market
Unrealized %age
Value
Gain/(Loss) Assets Recommendation
$258,973.15
$38,851 1.50%
Sell 150 bps
$650,625.80
($58,589) 3.77%
Hold
$537,075.00
($78,722) 3.11%
Hold
$706,517.28
($127,337) 4.09%
Hold
$521,482.00
($548,254) 3.02%
Hold
$850,234.60
$185,882 4.92%
Sell 92 bps
Buy 173 bps
20.41%
New
%age
Assets
0.00%
3.77%
3.11%
4.09%
3.02%
4.00%
1.73%
19.72%
Reduce Oracle
• Oracle is nearing 5% of all SIM holdings.
• Oracle has shown recent and remarkable
increases.
• Oracle will continue to do so in the future.
• Time to reap some value.
• Reduce Oracle Corporation to 4% (sell 92
basis points)
Sell Apple– Company Profile
• A computer hardware/software company with revenue
from:
–
–
–
–
–
–
Personal Computers
Small Business Computers
iPods
iPhones
Music Sales
Americas, Europe, Japan, Retail
• Incorporated in 1977
• Symbol - AAPL
Sell Apple– DCF
Terminal Discount Rate =
Terminal FCF Growth =
Upside/(Downside) to DCF =
12.0%
5.5%
-4.2%
Assumes Revenue of Growth: 20%
Assumes Margins of: 17%
Sell Apple– Valuation
Absolute
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
90.56
49.3
11.4
7.2
82.6
Low
Median Current
15.9
37.2
30.9
16.7
30.1
30.3
2.8
6.6
5.8
1.9
3.7
5.5
14.3
35.6
27.3
Relative to the Sector
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
3.5
2.1
2.5
2.7
5.5
Low
Median Current
1.4
1.7
1.7
1.0
1.6
1.7
.7
1.7
1.6
.7
1.6
2.7
1.7
2.4
2.3
Sell Apple– Pros/Cons
• Pros to Selling
–
–
–
–
–
Overvalued based on DCF and Valuation
Microsoft Windows 7 comes out in October
Sales dependent on trendy products
Good run in 2009
Other options with better value
• Cons to Selling
– $27 cash per share
– Growth of the iPhone and continued phone/network
development
– If Apple is able to continue revenue growth through new
products or sales in emerging markets large gains will be missed
Buy IBM
• A Diversified Computer System with revenue tied to
– IT infrastructure and business process services
– Consulting and systems integration
– Computing & storage solutions, including servers, disk & tape
storage systems & software
– Info Mgmt, integration, intelligence, security, storage, &
collaboration software
– commercial financing to dealers and remarketers of IT products
• Founded 1910
• Symbol - IBM
Buy IBM – DCF
Terminal Discount Rate =
11.0%
Terminal FCF Growth =
Upside/(Downside) to DCF =
4.0%
36.60%
Assumes Revenue of Growth: 6%
Assumes Margins of: 16%
Buy IBM – Valuation
Absolute
P/Forward E
P/B (*Removed GW from BV)
P/S
P/CF
Relative to the Sector
P/Forward E
P/B
P/S
P/CF
High
18.3
10.3
1.9
13.3
High
.90
4.0
.90
.90
Low
9.1
3.6
1.1
6.5
Target
Median
14.2
5.2
1.6
10.1
$122.40
Current
11.8
10.2
1.6
9.0
Upside = 4%
Low
.60
.90
.50
.60
Median
.70
1.3
.60
.70
Current
.70
2.8
.80
.80
Buy IBM – Pros/Cons
• Pros
–
–
–
–
Mature stock with large growth potential
Focus on high margin products (i.e. services, integration)
1.80% Dividend Yield
Cash On Hand = $12.5B
• Cons
– Debt ($96B in Tot Liabilities…$42B CL vs $49B CA)
• Removing GW and Intang Assets leads to TL > TA
– Similarities/Competition with HP
– Up 17.6% since July 10th (Overbought??)
IT Recommendation
SIM Portfolio Composition
Security
Apple Inc.
Hewlett Packard Co.
Intel Corp.
Microsoft Corp.
NCR Corp
Oracle Corp
IBM
Ticker
AAPL
HPQ
INTC
MSFT
NCR
ORCL
IBM
Market
Unrealized %age
Value
Gain/(Loss) Assets Recommendation
$258,973.15
$38,851 1.50%
Sell 150 bps
$650,625.80
($58,589) 3.77%
Hold
$537,075.00
($78,722) 3.11%
Hold
$706,517.28
($127,337) 4.09%
Hold
$521,482.00
($548,254) 3.02%
Hold
$850,234.60
$185,882 4.92%
Sell 92 bps
Buy 173 bps
20.41%
New
%age
Assets
0.00%
3.77%
3.11%
4.09%
3.02%
4.00%
1.73%
19.72%
Appendix
Microsoft
• There shall not be any action taken upon
Microsoft this quarter
• However it should be noted that the SIM
weight is approaching 5%, therefore the
next quarter should look into cutting back
• Microsoft appears to have an upside of
about 32.3%
Other Stocks Considered
•
•
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•
•
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FLIR
GOOG
ERTS
ADBE
HRS
RHT
•
•
•
•
•
•
PEGA
PCLN
WEBMD
CRM
VRSN
TSRA