2013
Portfolio Management
Topic: Trading after carrying out
Fundamental and technical Analysis of U.S.
Stocks
This assignment is submitted by Sana Riaz, Saira Khalid, Sara Shabbir, Sabahat
Riaz and Umaira Iqbal of Section M.Com 1A on 12th-December-2013 to Sir Ahsan
Qasim
Assignment No. 1 (Portfolio Management)
Group members:
Sana Riaz
Registration No. 0185
Saira Khalid
Registration No. 0201
Sara Shabbir
Registration No. 0048
Umaira Iqbal
Registration No. 0026
Sabahat Riaz
Registration No. 0213
Section: M.Com 1A
Contents
Group members:............................................................................................................................................ 2
Brief Overview of Assignment: .................................................................................................................... 6
Stocks Selected: ............................................................................................................................................ 6
Introduction of the Companies Which Stocks Are Analyzed: ...................................................................... 6
Facebook, Inc. Company Profile: ......................................................................................................... 6
Best Buy Co., Inc. Company Profile:.................................................................................................... 6
Rally Software Development Profile: ................................................................................................. 6
General Motors Company Profile: ........................................................................................................ 7
Indicator Analysis and Charts ....................................................................................................................... 8
Facebook: .................................................................................................................................................. 8
Facebook analysis as per indicators: ......................................................................................................... 8
Moving average: ................................................................................................................................... 8
MACD: ................................................................................................................................................. 8
RSI: ....................................................................................................................................................... 8
Overall conclusion of indicators: .......................................................................................................... 8
Best Buy analysis as per indicators: .......................................................................................................... 9
Moving average: ................................................................................................................................... 9
MACD: ................................................................................................................................................. 9
RSI: ....................................................................................................................................................... 9
Overall conclusion: ............................................................................................................................... 9
General Motors analysis as per indicators: ............................................................................................. 10
Moving Average: ................................................................................................................................ 10
MACD: ............................................................................................................................................... 10
RSI: ..................................................................................................................................................... 10
Overall conclusion: ............................................................................................................................. 10
Rally Software Development Analysis: .................................................................................................. 11
Short selling analysis: ......................................................................................................................... 11
Conclusion: ......................................................................................................................................... 11
Fundamental Analysis:................................................................................................................................ 12
Facebook as per 30th-September-2013: .................................................................................................. 12
Return on Capital ................................................................................................................................ 12
Return on Equity ................................................................................................................................. 12
Return on Total Assets ........................................................................................................................ 12
Earnings Per Share .............................................................................................................................. 12
Financial analysis of Best Buy as per 2nd-February-2013 ....................................................................... 13
Current ratio: ....................................................................................................................................... 13
Price to earning ratio: .......................................................................................................................... 13
Earning per share: ............................................................................................................................... 13
Return on capital: ................................................................................................................................ 14
General Motors as per 30th-September-2013 .......................................................................................... 14
Return on Capital ................................................................................................................................ 14
Return on Equity ................................................................................................................................. 15
Return on Total Assets ........................................................................................................................ 15
Earning Per Share ............................................................................................................................... 15
Price Earning Ratio ............................................................................................................................. 15
Current ratio: ....................................................................................................................................... 16
JUSTIFICATION: .............................................................................................................................. 16
Rally software as per 31st-January-2013: ................................................................................................ 16
Return on capital: ................................................................................................................................ 16
Return on Equity ................................................................................................................................. 17
Return on Total Assets ........................................................................................................................ 17
Justification: ........................................................................................................................................ 17
Technical Analysis of Stocks as per Support & Resistance levels: ............................................................ 17
General motors: ....................................................................................................................................... 17
Facebook: ................................................................................................................................................ 18
Rally Software: ....................................................................................................................................... 19
Best Buy:................................................................................................................................................. 19
Micro and Macro Analysis: ........................................................................................................................ 20
RALLY Software development news: .................................................................................................... 20
Best buy company’s news:...................................................................................................................... 20
Expert opinion: By Catey Hill ................................................................................................................ 21
General Motors news: ............................................................................................................................. 21

GM pointing to positives............................................................................................................. 21

Sales gains expected ................................................................................................................... 21
Facebook Company’s news: ................................................................................................................... 21
Virtual Trading Summary: .......................................................................................................................... 22
Justification of Stocks: ................................................................................................................................ 22
Face book stock justification: ................................................................................................................. 22
Best buy company’s stock justification: ................................................................................................. 23
General motors stock justification: ......................................................................................................... 23
Rally software development short selling justification: .......................................................................... 23
Brief Overview of Assignment:
In this assignment, we are going to analyses the stocks that were bought and short sold by
us as a group in virtual trading on the website www.howthemarketworks.com. This assignment
contains the analysis of stocks as per indicators, financial statements and micro and macro
environment.
Stocks Selected:




Facebook
Best Buy Company
General Motors
Rally Software
Introduction of the Companies Which Stocks Are Analyzed:
Facebook, Inc. Company Profile:
When it comes to social networking, it's wise to put your best face forward. Facebook, the social
networking juggernaut, lets users share information, post photos and videos, play games, and
otherwise connect with one another through online profiles. The site, which allows outside
developers to build apps that integrate with Facebook, boasts more than a billion total users. The
firm was launched in 2004 by Harvard student Mark Zuckerberg as an online version of the
Harvard Facebook. (The name comes from books of freshmen's faces, majors, and hometowns
that are distributed to students.) In 2012 Facebook began publicly trading after filing one of the
largest IPOs in US history.
Best Buy Co., Inc. Company Profile:
Best Buy wants to be the best consumer electronics outlet in the US and beyond. The
multinational retailer sells both products and services through three primary channels: retail
stores, online, and call centers. Its branded store banners include Best Buy, Best Buy Mobile,
The Car phone Warehouse, The Phone House, Five Star, Future Shop, Geek Squad, Magnolia
Audio Video, and Pacific Sales. Its stores sell a variety of electronic gadgets, movies, music,
computers, mobile phones, and appliances. On the services side, it offers installation and
maintenance, technical support, and subscriptions for mobile phone and Internet services. Amid
declining sales, Best Buy is focused on a turnaround.
Rally Software Development Profile:
Rally Software is a leading global provider of cloud-based solutions for managing Agile
software development. Our platform transforms the way organizations manage the software
development lifecycle by enabling close alignment of software development and strategic
business objectives, facilitating collaboration, increasing transparency, and automating manual
processes. Organizations use our solutions to accelerate the pace of innovation, improve
productivity and more effectively adapt to rapidly-changing customer needs and competitive
dynamics. Our enterprise-class platform is extensible, cost-effective and designed to be easy to
use. Agile is a software development methodology characterized by short, iterative and highlyadaptable development cycles. Since its introduction in 2001, organizations have increasingly
adopted Agile.
General Motors Company Profile:
General Motors (GM), one of the world's largest auto manufacturers, makes cars and trucks, with
well known brands such as Buick, Cadillac, Chevrolet, and GMC. GM also builds cars through
its GM Daewoo, Opel, Vauxhall, and Holden units. The company operates through five business
segments: GM North America, GM Europe, GM International Operations, and GM South
America. Financing activities are primarily conducted by General Motors Financial Company.
The current iteration of GM traces its roots to mid-2009, when the former GM was split into two
companies after it emerged from Chapter 11 bankruptcy protection: General Motors and Motors
Liquidation (the name for leftover assets).
Indicator Analysis and Charts
Facebook:
Facebook analysis as per indicators:
Moving average:
This indicator provides us the signals about price that either the price in future is going to rise or fall. It
includes support signal to buy and resistance to sale. But in the case of Facebook, since December, the
support trend is prevailing and shows that price will go up and we should intend to buy.
MACD:
In this case, single line is falling below the MACD curve. As per the rule, when MACD is above single
line, we should buy the stock and in future the cash flows will be positive for the company.
RSI:
RSI has 30 scales when stock is oversold and 70 when stock is overbought. But in this case of Facebook,
RSI is lying in between the two. But as the curve is showing the trend can be negative or positive.
Overall conclusion of indicators:
The two indicators, MA and MACD, are showing that the stocks must be bought so, we have purchased
the stock.
Best Buy:
Best Buy analysis as per indicators:
Moving average:
This indicator provides us the signals about price that either the price in future is going to rise or fall. It
includes support signal to buy and resistance to sale. But in the case of best buy, support signal has just
past and heading towards resistance. But it is still safe to buy.
MACD:
MACD curve is lying above the single line showing the stock must be bought. While the smoother line
i.e., single line is lying below. Moreover the cash flows shown are also positive for the company.
RSI:
In RSI, 52.1180 is below 70 i.e., the highest limit at which the stock has been over bought and it lies
above 30 showing it is not an over-sold stock So, according to RSI, it is neither under-valued nor overvalued. But it has come out after being undervalued and there was selling trend prevailing. Now people
are buying the stocks of this company and slight decrease on 4th December has occurred which shows a
small change and on 6th December stock price is trying to be stable. It tends to increase the value in
future so we are buying it.
Overall conclusion:
The three indicators are showing that the stocks must be bought so, we have purchased the stock.
General Motors:
General Motors analysis as per indicators:
Moving Average:
This indicator has upward trend showing that the prices will rise in future. It is showing a slight support in
the curve.
MACD:
According to this indicator, the curve of MACD is moving above the single line showing the bullish trend
and as per this trend the investor should purchase the stock.
RSI:
As per this indicator, curve is moving upward which means people are buying this securities and it has
not crossed the limit of over-bought i.e. 70, but it can be risky to purchase its shares.
Overall conclusion:
The two indicators, MA and MACD, are pointing towards buying decision so we purchased the shares of
this company.
Rally Software:
Rally Software Development Analysis:
Short selling analysis:
We short sell the shares of rally software development because its share price is decreased and our
expectation is that it will decline more. As you can see a sharp downward curve in its share price in the
above graph, the reason of this decline according to company’s news is that Technology shares sink with
the broader market Friday. Rally software was jumping 28.79% to $18.03 on its debut on the New York
Stock Exchange Friday after the maker of cloud-based software applications priced its initial public
offering of 6 million shares at $14 a share, exceeding its expected range of $11 to $13 for 5.75 million
shares. Company initially said that they will sell the share at $11 but later they sell at $14 a share which
mistrusted people and the share price of rally software development declined. Company’s share price was
$28 till Friday 06-12-2013 opening but till the closing of this day share price declined to $ 19 a share.
Conclusion:
I concluded that we short sell with the expectation that share prices of rally software development will
further decline so that we can make profit from the margin of low purchase price and high sale price.
Fundamental Analysis:
Facebook as per 30th-September-2013:
Return on Capital
Return on Capital = Earning before interest and tax x 100
Capital employed
=
736 x100
5430
= 13 %
Where, Capital employed = fixed assets + current assets – current liabilities
= 4294+10549-984
= 13859
According to Return on Capital Employed , the resulting ratio of 13 % represents the efficiency
with which capital is being utilized to generate revenue.General Motors are using their capital
efficiently to generate revenues.
Return on Equity
Return on Equity =
Net Profit x 100
Equity
= 425
x 100.
13048
= 3.25%
According to Return on Equity Ratio , we interpret that General Motors are generated $.0325
of profit for every $ 1 of shareholders' equity which is quite good .
Return on Total Assets
Return on Total Assets =
Net profit after interest and tax
Total Assets
=
425
x 100.
14933
= 2.84%
According to Return on Total Assets Ratio, company is earning 2.84 % on its total assets
Earnings Per Share
Earning Per Share =
Net income
Outstanding Shares
=
425 x 100.
2453
= 0.17 per share
Earning per share of company is 0.17 .It means every share of the common stock earns 0.17 dollars
of net income.
Financial analysis of Best Buy as per 2nd-February-2013
Current ratio:
Current ratio =
=
Current Assets
Current Liabilities
12047000000
10810000000
=
1.114
Having the current ratio more than one is quite favorable for the business. It means current assets are
greater than current liabilities.
Price to earning ratio:
Price-to-earning ratio
= Market value per share
Earning per share
= 16.11
1.02
= 15.67
It shows that if the investor invests 16.11 per share, the earning will be of 1.02 and hence the value comes
of 15.67 which is quite good.
Earning per share:
EPS = Net income
Outstanding Shares
= 1.02 per share
It is calculated that what percentage of dividend, company distributes to its shareholders. Higher EPS is
the sign of higher earnings and strong financial position. It means that every share is going to provide the
yield of 1.02.
Return on capital:
Return on capital = Earning before interest and tax x 100
Capital employed
=
1252400000
4507000000
x 100
= 27.787%
Where,
Capital employed = fixed assets + current assets – current liabilities
= 3,270000000 + 12,047000000 – 10810000000
= 4507000000
Return on capital ratio is a measure of efficiency of the capital that the shareholders have provided to the
company for the sake of investment. It measures the profitability of the company that what percentage of
capital is earned by business. Our Best Buy Co. is generating 27.787% return which is quite attractive.
General Motors as per 30th-September-2013
Return on Capital
Return on Capital = = Earning before interest and tax x 100
Capital employed
=
2258 x100
26981
= 8.38 %
Where, Capital employed = fixed assets + current assets – current liabilities
= 8317+81164-62563
= 26981
According to Return on Capital Employed , the resulting ratio of 8.38 % represents the
efficiency with which capital is being utilized to generate revenue. General Motors are
using their capital efficiently to generate revenues.
Return on Equity
Return on Equity =
Net Profit x 100
Equity
= 1717
x 100.
36778
= 4.67%
According to Return on Equity Ratio , we interpret that General Motors are generated
$.0467 of profit for every $ 1 of shareholders' equity which is quite good .
Return on Total Assets
Return on Total Assets =
=
Net profit after interest and tax
Total Assets
1717
x 100.
168539
= 1.018%
According to Return on Total Assets Ratio, company is earning 1% on its total assets
Earning Per Share
Earning Per Share =
=
Net income
Outstanding Shares
1717
x 100.
1400
= 1.23 per share
Earnings per share of company is 1.23 .It means every share of the common stock earns 1.23 dollars
of net income
Price Earning Ratio
Price Earning Ratio = Market value per share
Earning per share
= 35.97
1.23
x 100.
= 29.24 times
According to Price Earning Ratio ,if the share price of General Motors is $35.97 and earnings per
share is $1.23, investors are ready to pay 29.24 times earnings.
Current ratio:
Current ratio =
Current Assets
Current Liabilities
=
=
81164
62563
1.24
According to Current Ratio , company have solvent because it have more assets to pay its liabilities.
JUSTIFICATION:
So we analyses all the ratios of General Motors and it is indicating good and strong financial
position of General Motors. That’s why we are purchasing Shares of that company.
Rally software as per 31st-January-2013:
Return on capital:
Return on Capital = Earning before interest and tax x 100
Capital employed
= -1.08
1.6
x 100
= -675%
Where,
Capital employed = fixed assets + current assets – current liabilities
= 36.1 + 4.2 -38.7
= 1.6
Return on Equity
Return on Equity =
Net Profit x 100
Equity
= -10.8
-3
x 100
= 360%
Return on Total Assets
Return on Total Assets =
Net profit after interest and tax
Total Assets
x 100
= -10.8 x 100
41.9
= -25.7%
Justification:
The value of these ration are negative due to loss faced by them in the year ended 31st-January2013. Our first observation showed that stock is running a good market price but later, we
observed this stock in poor condition and find it suitable for short selling due to its price decline
trend due to lack of trust of people.
Technical Analysis of Stocks as per Support & Resistance levels:
General motors:
As far as the level of support for general motors is concerned, then in the period of 18 th November 2013
to 11th December 2013, support level lies on $37.66. we see that this level is the level at which stock often
comes at declined. While the resistance level is $39.00. while on 6th December, its resistance level was
crossed and new range was introduced. But it can or can’t be new range means it can be a temporary
increase depends on future market conditions.
In addition, we are considering just a small period of time because the stock variation is on large span of
time and it continues to increase since the start of year 2013 and has no specific level of support and
resistance in long term.
Facebook:
In case of Facebook, considering the period of October 2013 to December 2013, the level of support is on
$45.58 where the stock price often comes at decline while the resistance level is of $52 seems evident
because stock price often reaches this level at the time of going up. Uptill now on 10th December 2013, its
level is below the resistance level and it means people are going to buy this stock frequently. After some
time in near future, this will reach the resistance level or even above depending upon the market
conditions.
Rally Software:
In case of Rally, the support level is on $23.99 or $24 because it’s the level at which price often comes
when going down. And resistance level lies on $30. However, we also notice a level of price at which the
price of stock goes up the resistance level. In this case, we are considering the time frame of August 2013
to December 2013. But now on December 7th to 10th, we notice a dramatic change in price that is below
the resistance level. At this level, we see that the price are down because people are short selling it and
people lack of confidence lead to this stage.
Best Buy:
For best buy, we are considering the short term period of 14th November to 10th December-2013. The
support limit is 38.75 because stock often comes to this price while moving down and the resistance level
is $43.02. all these levels confirm about the trend about best buy share prevailing in stock exchange. As
we know that a break beyond a level of support or resistance does not always have to be a reversal. And
we observed a similar trend in this stock in mid November that investors began to understand that new
limits for support and resistance has determined but at the end, prices move down to their previous limits
of support and resistance.
Micro and Macro Analysis:
RALLY Software development news:


Rally Software Donates Over $1 Million toward Social Impact. Donation of 47,189 Shares Has
Significant Impact on company’s reputation and ultimately increase the share price of the
company.
Technology shares sink with the broader market Friday. Rally software was jumping 28.79% to
$18.03 on its debut on the New York Stock Exchange Friday after the maker of cloud-based
software applications priced its initial public offering of 6 million shares at $14 a share,
exceeding its expected range of $11 to $13 for 5.75 million shares.
Best buy company’s news:

Best Buy Co., Inc. (BBY): Upcoming Gaming Consoles Should Boost Sales, Traffic for Best
Buy. The soon to be launched new video game consoles from Microsoft Corporation (NASDAQ:
MSFT) and Sony Corporation (ADR) (NYSE:SNE) should provide a nice sales and traffic boost
for retailers such as Best Buy Co., Inc. (NYSE: BBY). Increase in net sales means more revenue
and hence better market value of shares.

At Best Buy Co., Inc. BBY +0.17% , Microsoft Corporation’s MSFT -1.28% Surface 32GB
tablet was the top seller, followed by Apple’s iPad 2, echoing observations from a Market Watch
store visit on Thursday night.
Expert opinion: By Catey Hill
Best Buy Company is America’s most consumer-friendly stores that offer price guarantees,
lenient return policies and frequent deals. Shopping at best buy store versus another can mean a
difference of hundreds—sometimes thousands—of dollars.
Catey Hill and many other investors are having good view of company and invest in its shares.
General Motors news:

Don’t call it Government Motors any more.
“The Obama administration ended the government’s historic, nearly five-year intervention in the
U.S. auto industry Monday. U.S. Treasury Secretary Jack Lew announced that it had sold its
final shares in General Motors Co., leaving taxpayers with a $10.5 billion loss on the $49.5
billion bailout. The move means the country’s largest automaker finally is free of government
pay restrictions for top executives and can again pay dividends on its common stock.”

GM pointing to positives
Before Monday’s announcement, GM stock closed at a record $40.90, up 1.8 percent or 73 cents,
after topping $41 a share early. GM stock soared in after-hours trading after the exit was
announced — jumping to $41.40, up 50 cents a share. Shares of GM are up about 42 percent this
year.

Sales gains expected
Reuss told reporters Monday before the announcement that he expected the end of government
ownership would increase sales, and that some buyers may consider buying from GM as soon as
the day following Treasury’s exit. Reuss said that may be especially true in regions where GM
sells a lot of trucks.
Facebook Company’s news:


Facebook’s revenues from mobile advertising increased 41% in the second quarter of 2013,
compared to its second quarter earnings from 2012. Analysts suggest the third quarter report will
show Facebook earned somewhere between $760 million and $840 million from mobile ads;
some even predict the figure could be above $900 million.
A good report card for Facebook will translate into benefits for investors, companies, and users. It
would prove that Facebook has begun to improve a new and more effective advertising strategy
(though it's still not perfect). Better-targeted ads will create more revenue for companies and
news feed more relevant for users.
Virtual Trading Summary:
Justification of Stocks:
Face book stock justification:
According to the indicators (Moving average, MACD, Relative strength index) we analyzed the stock of
face book and came to the conclusion that we should buy the stock according to Moving average and
MACD because these indicators are in favor of buying face book stock. According to moving average
since December, the support trend is prevailing and shows that price will go up and we should intend to
buy and according to MACD, signal line is falling below the MACD curve. As per the rule, when MACD
is above signal line, we should buy the stock and in future the cash flows will be positive for the company
that is why we bought its stock.
Best buy company’s stock justification:
According to the indicators (Moving average, MACD, Relative strength index) we analyzed the stock of
best buy company and came to the conclusion that we should buy the stock according to Moving average
and MACD because these indicators are in favor of buying best buy stock. According to moving average,
support signal has just past and heading towards resistance. But it is still safe to buy and according to
MACD the MACD curve is lying above the single line showing the stock must be bought. While the
smoother line i.e., single line is lying below. Moreover the cash flows shown are also positive for the
company.
General motors stock justification:
As per the indicators (Moving average, MACD, Relative strength index) we analyzed the stock of general
motors and came to the conclusion that we should buy the stock according to Moving average and MACD
because these indicators are in favor of buying general motors stock. According to moving average, there
is upward trend showing that the prices will rise in future. It is showing a slight support in the curve and
according to MACD, the curve of MACD is moving above the single line showing the bullish trend and
as per this trend the investor should purchase the stock. So we bought this stock according to the
assistance of these above stated indicators.
Rally software development short selling justification:
We short sell the shares of rally software development because its share price is decreased and our
expectation is that it will decline more. As you can see a sharp downward curve in its share price in the
above graph, the reason of this decline according to company’s news is that Technology shares sink with
the broader market Friday. Rally software was jumping 28.79% to $18.03 on its debut on the New York
Stock Exchange Friday after the maker of cloud-based software applications priced its initial public
offering of 6 million shares at $14 a share, exceeding its expected range of $11 to $13 for 5.75 million
shares. Company initially said that they will sell the share at $11 but later they sell at $14 a share which
mistrusted people and the share price of rally software development declined. Company’s share price was
$28 till Friday 06-12-2013 opening but till the closing of this day share price declined to $ 19 a share. We
short sell with the expectation that share prices of rally software development will further decline so that
we can make profit from the margin of low purchase price and high sale price.
--------------------------------------------------------------------------------------------------------------------