General Body Meeting
9/1/2010
Agenda
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Welcome back
Introduction to the team
Club operations
Previous investment pitches
Opportunities to get involved
Conclusion
Mutual Investment Club of Cornell
The executive board
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Jeffrey Hau
Daniel Sherry
Akshay Nagia
Chirag Shah
Melody Chu
John Yoshida
Jai Reddy
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Samantha Dong
Terence Hu
Derek Creadore
Andrew Verri
David Wong
David Shim
Scott Deuschle
Mutual Investment Club of Cornell
What does our club do?
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Manage money
 ~$50,000
portfolio
 Value orientation
 Long/short equity
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Educate
 Semester-long
training
program designed by
Dan Sherry
 Great for new
members
 Teaches fundamental
principles
Mutual Investment Club of Cornell
Analyst teams
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Senior
Analyst
Junior
Analyst
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Senior Analyst
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Have strong knowledge of
industry
Generate investment ideas
Approve additions to
conviction list
Manage pitch process
Junior
Analyst
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Junior
Analyst
Junior Analyst
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Compile weekly industry news
Propose new companies to
add to conviction list
Do fundamental research to
put investment pitches together
Help monitor current holdings
Mutual Investment Club of Cornell
Other ways to get involved
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Newsletter
 Monthly
editions
 Three types of articles: investment pitches, new club
initiatives, opinions on the economy
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Writing for the website (blogging)
 More
flexibility than newsletter
 More opinionated
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Research reports
 Opportunity
to produce investment theses
Mutual Investment Club of Cornell
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So how do we choose our investments?
Mutual Investment Club of Cornell
8
TBF
Short 20+ Year Treasury
Daniel Sherry
Mutual Investment Club of Cornell
Original Thesis
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Factor
We think it will go:
Causing interest rates to:
X
Monetary Policy
Tighter
Increase
X
Fiscal Policy
Stay loose
Increase
-
Saving
Lower as recession eases
Increase
X
Capital Investment
Higher as recession eases
Increase
X
Inflation
Maybe up?
Increase
•10 year treasury rate at purchase: 3.42%
•10 year rate now: 2.47%
Mutual Investment Club of Cornell
Monetary & Fiscal Policy
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Monetary Policy: Never really as loose as we
thought it was.
 Interest
on reserves – 0.25%
 Monetary aggregates
 No tightening anytime soon – possible loosening
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Fiscal Policy: you don’t have to outrun the bear…
 Euro
trouble
Mutual Investment Club of Cornell
M0 Money Supply
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Mutual Investment Club of Cornell
M1 Money Supply
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Mutual Investment Club of Cornell
M2 Money Supply
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Mutual Investment Club of Cornell
Saving, Capex, and Inflation
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Personal saving: not exciting.
Capital investment: not picking up like we thought.
Inflation expectations: subdued, to say the least.
5-year
market
inflation
expectations
Mutual Investment Club of Cornell
Looking Forward
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Fed’s options
 Explicit
medium-term inflation target
 Lower the interest on reserves
 Additional quantitative easing
 Do nothing – continue promising to keep rates low
“for an extended period”
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None of these will increase rates, at least in the
short term.
Mutual Investment Club of Cornell
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HXM
Homex
Jai Reddy
Mutual Investment Club of Cornell
Original Pitch
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Thesis: Improvement in macroeconomic variables coupled with
Homex’s competitive position makes for a substantial growth
opportunity
Macro variables:
 GDP, employment, wages
 Important for earnings acceleration and mortgage
origination
Competitive position
 Leader in low income/entry level housing
 Geographically diverse
 Efficient building processes
Mutual Investment Club of Cornell
2010 Market Expectations and Implications
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Economic growth to swing from -7% to 3% in
2010
Employment to expand 2.3% after drop of 3.9%
in 2009
Demand side
 Growing
salaries improve mortgage affordability
 Employment growth increases potential size of
homebuyers market
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Supply side
 Infonavit’s
funding comes from taxes on salaries
Mutual Investment Club of Cornell
What changed?
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Q4: Weak quarterly sales
Change to a more conservative strategy
No geographic expansion during Q4
Downgrades by analysts
Though these may sound like too many negatives,
they are all effects of a strategy to improve
working capital management and free cash flow
generation
Mutual Investment Club of Cornell
Recent events & looking forward
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Strong revenues and margins in Q210
 Due
to strategically focusing in more profitable
areas/demographics
 Increases in FCF as planned part of their strategy
 Increase in EBITDA
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Potential Catalysts
 Surprises
in economic growth expectations
 Problems with technologies and leadership control
 Changes in targets for mortgage origination
Mutual Investment Club of Cornell
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CSCO
Cisco
John Yoshida
Mutual Investment Club of Cornell
Cisco Systems, Inc.
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Designs and sells technology and service for
electronics, networking and communications
 Founded
in 1984 developing and selling routers
Mutual Investment Club of Cornell
Original Thesis (February 2010)
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Next-generation technologies are poised to take
advantage of both existing and new markets
Strong cash equivalents will lead to key strategic
acquisitions
Mutual Investment Club of Cornell
Performance
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Mutual Investment Club of Cornell
Earnings Update
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EPS slightly beats expectations but…
 Sales
forecast miss expectations
 “Unusual uncertainty” and “Mixed Signals”
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Company hiring employees
NO CHANGE IN THESIS
Mutual Investment Club of Cornell
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TEVA
Teva Pharmaceuticals
Samantha Dong
Mutual Investment Club of Cornell
TEVA- Overview
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Originally pitched Nov 3, 2008
World’s largest generic drug maker
 Market
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Cap: $47.37 BN
Generic and branded pharmaceuticals, active
pharmaceutical ingredients (APIs)
 Principal
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Products: Copaxone
Original thesis:
 Upside:
Recession proof, industry leader, diversified
pipeline, political environment, patent expiration
 Downside: Growing competition
Mutual Investment Club of Cornell
TEVA- Performance
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1 As
Purchased:
$43.02; sold half
position @ ~$60
Current price:
$50.621
of market close on 8/31/2010
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Since pitched:
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Since summer:
Mutual Investment Club of Cornell
TEVA- Recent News
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Growth
 Licensed
branded cancer drugs
 Acquisition with Ratiopharm: Europe footprint
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Q2 Earning
 up
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53%, boosted by Copaxone sales
FDA approved the first generic version of Lovenox
 Sanofi-Aventis’ blood clot treatment
 Concern
about generic version of Copaxone
Mutual Investment Club of Cornell
Applications
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Junior analyst applications will be accepted until
September 10th
Apply online at www.cornell-micc.com
Please speak with me if you’d like to get involved
in other ways
Mutual Investment Club of Cornell
Brain teaser
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Three players enter a room and a red or blue hat is placed on each person’s
head. The color of each hat is determined by a coin toss, with the outcome of one
coin toss having no effect on the others. Each person can see the other players’
hats but not his own.
No communication of any sort is allowed, except for an initial strategy session
before the game begins. Once they have had a chance to look at the other hats,
the players must simultaneously guess the color of their own hats or pass. The
group shares a hypothetical $3 million prize if at least one player guesses
correctly and no players guess incorrectly.
The general problem is to find a strategy for the group that maximizes its
chances of winning the prize.
Mutual Investment Club of Cornell
Answer
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Come to the next meeting to find out…
Mutual Investment Club of Cornell
Conclusion
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Next general body meeting will be Sept 15th
where we will announce our junior analysts
First training session will be Sept 8th
Thanks for stopping by!
Mutual Investment Club of Cornell