Friday March 7th, 2014
Lafayette College Investment Club
Meeting Agenda
• 1) Announcements
• BAT (Bloomberg) Rescheduled
• Market Madness
• SMC – Interviews and Night (Info session)
• 2) Market Update
• 3) Portfolio Overview
• 4) SELL IBM (PARTIAL SHORT TERM GAIN)
• 5) SELL EXPE (PARTIAL SHORT TERM GAIN)
• 6) BUY ATVI (Activision Blizzard)
Market Update
Othman Guennoun, Connor Steigerwald, Emily Evanko
Friday, March 7th, 2014
Crisis in UKRAINE
• Russia sent troops into Ukraine to ensure their loyalty and the
control over Ukraine's resources
-Russia is the largest energy exporter
• After troops were sent in:
-Oil and natural gas gas prices rose
-Price of gold spiked as tensions increased
• Ukraine is 6th largest wheat exporter, 4th largest barley exporter
-Wheat barley and corn--> price of grain spiked
-Ukraine is the largest producer of Sunflower oil
• U.S. dollar increased in value because it was looked at like gold
Financial Markets
• Financial markets rattled, triggered a global stock selloff
-Three major U.S. stock indexes had biggest one-day declines in a
month
•
Ukraine allies threatened to retaliate against Russia with economic
sanctions
•
Russia felt the most market pain
• Yields on Ukraine bonds went up currency fell
• Diplomatic push by Kerry and UK
• Russia withdrew from Ukraine and stocks reached all time highs
CHEVRON (CVX)
Chevron 1.9% of the portfolio, 80 shares valued at $9188
following the close on Thursday.
•
• Chevron won a counter-suit blaming an Ecuadorian environmental
group for obtaining evidence through racketeering.
•
The environment group - originally won $19 billion dollars from
Chevron for human rights and environmental violations, which
Chevron had refused to pay.
•
The company had been claiming the environmental group had
obtained evidence illegally.
•
Because of the victory in the counter-suit, Chevron has restored
confidence to investors, and analysts are predicting more steady
growth.
ExxonMobil
• Spending cuts and and decrease in performance makes
investors nervous
• Return on Capital Employed (ROCE) for 2013 : 17%.
Usually great for other companies but not for Exxon
• Despite high prices – Exxon can’t have ROCE of 20%
which what it usually has
• On Wednesday, CEO announces spending cuts – 10%
decrease in capital expenditures budget.
• Stock goes down 3% after announcement
First Chinese Bond
Default since the 90s
• Bond Default: failure to pay interest or principal when due
• Shanghai Chaori Solar Energy Science and Technology Company
announced that it can’t pay interests on its Chaori bond.
• Can only pay 4million yuan out of 89.8 million yuan.
• Scared investors who invest in China.
• Might lead to contagion?
• Some say it’s a good thing for the economy: “A normal economy
needs defaults to better price bonds and other debt products”
Unemployment Rate for
February
PREDICTIONS ON FRIDAY’s Reports
• Economists predict 152,000 increase in nonfarm
payrolls compared to 113,000 in January
• Unemployment rate expected to go down by one tenth
to 6.5%
• If rate goes down, stock should rise
Stocks Close Mostly
UP
• S&P 500 rose 3.22 point (0.2%)
Fourth all time high in six sessions
• Dow Jones rose 61.71 points (0.4%)
• Nasdaq Composite Index goes down by 5.85 points (0.1%)
Because of weakness in biotechnology stocks
Portfolio Updates
By: Peter Oberender and Angel Stoychev
Portfolio overview
• Pfeizer – FDA approval on Lipitor sold over the
counter
• Clorox – UBS downgrade to sell; no organic growth,
lower margins anticipated
• Baidu – Quarter 4 earnings disappoint
• Ebay – Proxy fights continue
• Nuverra Environmental – Earnings
Gilead Science INC: GILD
•
4.86%
•
Up 9.2% last 3 months
•
Positive fourth quarter earnings
•
Sold 3.7 Billion in corporate bonds
Caterpillar INC: CAT
• 4.02%
• Up 15.63% In past 3 months
• Sales of construction equipment rose despite weather
conditions
General Electric Co:
GE
• 4.72%
• Down 1.1% in past 3 months
• $3 billions in bond sales
• Signed one year agreement with NYPA
UnitedHealth Group
Inc: UNH
• 3.96%
• Up 6.72% last 3 months
• In Feb online bill payment grows to more than 50,000
IBM
Short-term Gains
50 Shares
Thesis
• IBM currently 4.75% of portfolio
• Already have substantial positions in tech
• Free up cash – continued diversification
Why IBM?
• Hardware business is eroding
• Composed of servers, chips, storage gear
• Cannot keep pace with Cloud computing
• Lowest quarterly revenue in 4 years
Inorganic Growth
• Unable to grow business internally
• Sold computer server piece to Lenovo
• J.P. Morgan: “IBM model not nimble enough to jumpstart
revenue and growth.”
• Consulting services largest part of business
Conclusion
• IBM still has value in services and tech
• Our position is too large in portfolio
• Undergoing transformation process
• Short-term gains allows for diversification
EXPE
Sell half position (short term gains)
Expedia Background
• Expedia is the number 2 brand player in the online travel industry.
– Hotels.com, Trivago (Europe), E-Long (China) are a few of their
online search engines.
– Currently a majority market share owner domestically roughly
14.23% of the market vs. PCLN
– Currently a minority market share owner internationally
• With a goal of growing its user base, Expedia aims to continue
investing in developing its technology and content to improve its
product offerings and expand its presence across geographical
segments.
– While it remains positive about its long-term growth potential, it is
wary of increasing competition in international as well as
domestic markets.
Thesis for Sept Buy
• If you recall back in September I bought Expedia for a back
half of the year story.
• Q3 and Q4 because business is easier in that period for
Expedia drives higher revenue and sales.
• It traded at a steep discount for no fundamental reason
besides management misguidance.
• Management set achievable targets that they hit and the
stock reverted back to its mean June 2013 price of 75 a
share.
• Essentially it was a mean reversion trade
What has changed?
•
Management has set achievable targets going forward and did apparently learn there
lesson.
•
However, in the short term owning this stock could be troublesome.
•
1) Much of Expedias growth reported in Q3 and Q4 was due to Trivago and E-long
•
2) There is still incremental technology-related spend being directed toward the Expedia
Traveler Preference Program (ETP) as new hotels come onto the platform.
•
3) Is an improved European macro outlook driving higher growth in travel bookings?
•
We have a large position, we are looking to trim to take some gains and allocate
elsewhere.
•
Still long thesis intact as growth across the board is solid.
Activision Blizzard
(ATVI)
Buy 2000 shares at Market Price
4% of Portfolio
By: George Rakic and Benjamin Tschan
Company Overview
• Activision Blizzard Inc. (July 9th,
2008) is a world wide mobile, online
and video-game publisher
• Sector: Technology
• Industry: Software
Segmentation
(Geo)
• US: 53% of revenues
• Europe: 40% of revenues
• Asia Pacific: 7% of revenues
Segmentation
(Business)
• Activision Publishing Inc. (67%)
• Call of Duty, Skylander
• Blizzard Entertainment Inc. (26%)
• Diablo, Starcraft, WoW
• Activision Blizzard Distribution (7%)
• Sales distribution in Europe, manufacturers of interactive
entertainment hardware
Revenue Stream and
Growth
• 3 main Revenue Channels:
• Software Purchases
• Monthly Subscriptions
• “In-Game” Purchases
• Revenue:
• $4.755B (2011)
• $4.856B (2012)
• $4.583B (2013)
This Year’s Revenue
• Revenues fell by 5.6% due to a loss in WoW
subscriptions
• However, expected to rise due to the new expansions
coming up later this year
10 Year Preformance
Competitors
ATVI
TTWO
ZYNG
EA
Average
Revenue
4.58B
2.45B
873M
3.66B
2.89B
EBITDA
1.48B
526M
74M
223M
575M
Net
Income
987M
371.15M
-37M
-36M
321M
Profit
Margin
67%
63%
72%
41%
61%
EPS
.95
3.73
-.05
-.12
1.13
P/E
21.23
5.56
N/A
N/A
N/A
Why a Good
Investment?
• Strong value inside a company
• Really cheap (the street not happy with revenues)
• Pays dividends
• Coming up with new game Heroes of the Storm
• New Expansions for released games
Catalysts
• Candy Crush (Kings) IPO
• Report another dip in revenues
• Game coming out will not be a success
Buy 2000 shares at
Market Price
4% of Portfolio