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Market Update 10/4/13

Market Update 10/4/13. Government Shutdown. Congress could not agree on increasing the borrowing limit to fund government operations Controversy surrounding Affordable Care Act: Republicans using fiscal policy as a bargaining chip for the defunding of “Obamacare”

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Market Update 10/4/13

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  1. Market Update10/4/13

  2. Government Shutdown • Congress could not agree on increasing the borrowing limit to fund government operations • Controversy surrounding Affordable Care Act: Republicans using fiscal policy as a bargaining chip for the defunding of “Obamacare” • More than 800,000 government employees furloughed

  3. Economic Ramifications • Morgan Stanley economists estimate .15% decrease in quarterly GDP • Inability to get federal loans • No jobs report on Friday • Could make Fed’s decision more difficult

  4. Financial Markets

  5. U.S. Dollar • Dollar fell to 8 month low against Euro • 19 month low compared with Swiss franc • Fears that country could plunge into another financial crises if debt ceiling is not raised • Peter Gora, head of FX Research at BNP Paribas: “The debt ceiling is creeping into the psyche of investors, and that’s why the dollar is weaker.”

  6. Goldman Sachs • Goldman landed the lead role on Twitter’s IPO • Pulling ahead of Morgan Stanley for lead in internet IPO deals • Rewarded Goldman’s effort to rev up internet IPO franchise • Important because of prestige: Facebook, Pandora

  7. Looking Ahead • Despite volatile conditions, most investors expect improvement • Too much at stake not to find resolution • Keep an eye on new from Congress in coming weeks • October 17th potential debt ceiling impasse

  8. Stock Valuation • Understanding How Stocks Are Compared And Valued

  9. Types of Valuation • Fundamental Analysis – “A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors.” – Investopedia • In other words you have to look at the big picture when fundamentally looking at a company. • You have to consider things like; Industry (Competitors, Market), Earnings, Income, Cash Flow etc. • Essentially you need to find out the Companies DNA.

  10. How do we do this? • Balance Sheet - A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. (Loans/ Short term/long term Debt) • Income Statement - a financial statement that gives operating results for a specific period. (expenses/ COG’s) • Cash Flow - The total amount of money being transferred into and out of a business, esp. as affecting liquidity. (solvency, the cash health) • All three things can publicly be viewed online, these statements are released Quarterly, and Annually.

  11. What's Next? • Once you have considered “The Big Picture”, you have an understanding of the companies fiscal figures, the next question I always ask myself, is where the hell is this stock going and how does it compare to its market and competitors? • A great tool to use are ratios that you can use to valuate these companies and see how they match up. • Most of these ratios point out if the stock is “cheap” or “expensive” or “undervalued” or overvalued”. • Once you understand where the company stands in comparison to the market, you can see if these are the right “levels” to get in.

  12. Ratio’s • Here are some of the Ratio’s used to valuate companies. • P/E – Price Earnings • PEG – Price Earnings Growth • EBITDA - Earnings before interest, taxes, depreciation, and amortization • EV/EBITDA – Enterprise Value to EBITDA

  13. Price/Earnings • This valuation ratio compares the company's current share price to its per-share earnings. • This can be a valuable tool in evaluating companies within the same industry. • P/E is often used as a multiple when noting how much an investor/trader is willing to pay per dollar of earnings. • You will often hear analysts or traders say, “Its trading 10 times earnings” or “At a multiple of 14 the stock seems cheap”. • Formula: Market Value per Share / Earnings per Share (EPS)

  14. PEG (Price Earnings Growth) Ratio • A huge valuation tool for estimating potential earnings growth. • A company with a low PEG ratio closer to 0 is most likely undervalued. • However, just like P/E it has its limits. • These are projected numbers, so of course are subject to change. • This is still a great tool to see how it compares to industry leaders, also a huge tool used by Growth Investors. • Formula: Price/Earnings / Annual EPS growth

  15. EBITDA • A measurement of a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. • In essence you have a look at the company’s total profitability outlook.

  16. Enterprise Value/ EBITDA • First Enterprise Value is not to be mistaken with market cap. • Market Cap only deals with is limited to common equity. • Enterprise Value sums up everything and gives you the market value of the whole business. • EV/EBITDA is important because it can compare any company to another. • It ignores tax structures of other countries, and it also can be a great tool for potential takeover targets. • A company with a low ev/ebitda multiple is considered by some as undervalued.

  17. DCF – Discounted Cash Flow • This a great method for evaluating what your investment may be down the road. • In essence, DCF is = the money you would receive from an investment and adjusts for the time value of money.

  18. DLTR vs. FDOJosh Silver and Brad Marshall

  19. Business model • Dollar Tree (everything $1) • 4763 stores 48 states • Family Dollar – cheap goods at low price • 7100 stores 45 states

  20. Competitors • Sector is being hit, but good future • Dollar General • Walmart • Target • Big Lots • Dollar Tree • Family Dollar

  21. Family Dollar

  22. Dollar Tree

  23. Key Statistics

  24. Stock buy-back • Seen as a positive thing among the investors • Management thinks its stock is undervalued, so they are going to use their assets to buy cheap and sell high later on • Now, each stock will be more valuable (supply and demand)

  25. Proposition • Add to position: DLTR • Sell position: FDO

  26. Catalysts Micro: Dollar Tree Bad business plan inflation -- they are stuck with $1 Macro: Economy What happens when economy gets better?

  27. Southern Copper CorporationNYSE: SCCOMac Ahsler and Sean O’Toole

  28. Company Overview • One of the largest integrated copper producers in the world. • Mining, smelting, refining in Mexico and Peru • Also produce and sell zinc, silver, molybdenum • Exploration into Chile, Argentina, and Ecuador

  29. Overview continued • Worlds largest copper miner by reserves (168 billion pounds of proven and probable reserves as of year-end 2012) • Among the largest by annual output (1.4 billion pounds in 2012), • Very low cost open-pit mines

  30. Location

  31. Business Model • Copper industry is largely impacted by demand and price for the commodity. • Much of this is out of their control • Management focus on cost control, product enhancement, and exploration to stay profitable.

  32. Equity Overview • Price (at close yesterday) - $26.95 • Market Cap- 22.73B • Volume/ 30-day Average – 1.77M/ 1.59M • Shares 842.13 M • Beta – 1.46 • EPS- 1.91

  33. Price to Earnings Ratio (P/E) • SCCO Current P/E - 14.2 • Industry Average P/E - 13.2 • SCCO 5 YR. Average P/E - 18.9

  34. P/E Definition • Market Value per Share/ Earnings per Share (EPS) • Compares share price to per share earnings. • High P/E generally means investors expect high earnings growth in the future. • Compare P/E to the market or other companies in the industry. • AKA “price multiple” or “earnings multiple”

  35. Price to Book Ratio (P/B) • SCCO Current P/B - 4.4 • Industry Average P/B – 2.3 • SCCO 5 YR. Average P/B – 7.0

  36. P/B Definition • Stock Price/ (Total Assets – Intangible Assets and Liabilities • Measures stock value compared to accounting value of company • Generally, a lower P/B ratio could mean stock is undervalued. • Compare P/B to other companies in the industry. • AKA “price- equity ratio”

  37. Price to Sales Ratio • SCCO Current Price/Sales - 3.7 • Industry Average Price/Sales – 2.3 • SCCO 5 YR. Price/Sales Average – 5.4

  38. Price/Sales Definition • Share Price/ Revenue Per Share • Compares stock to its own past performance • A low ratio suggests a company may be undervalued • Be careful. Price/Sales doesn’t account for debt or expenses. Can be misleading

  39. Dividend Yield (%) • SCCO Current Yield - 12.2 • Industry Average Yield - 7.1 • SCCO 5 YR. Average Yield - 7.0

  40. Returns *assumes $100 dollars invested in 2007

  41. Risk Factors • Dependent on price of copper • Labor relations have been tense in recent years • Success of expansion projects uncertain • Majority steak (81.3% ownership) by Grupo Mexico

  42. Straight from the Annual Report

  43. Straight from the Annual Report

  44. Recommendation • We believe this stock is fairly valued • Appears that it can show sustainable growth in the future. • Buy until it is 2% of portfolio

  45. Nuverra Environmental Solutions Inc. Chris and Pete 4,500 shares @ Mkt price

  46. Company Overview • Strategic focus on providing comprehensive environmental solutions in industrial and energy markets (exploration and production solutions) • Services include delivery, collection, treatment, Recycling and disposal • Asset base has become a significant aspect of company

  47. Segment Breakdown

  48. Risks • Indebtedness • Specifically $400MM 2018 note that includes a $150 payment in 2017 • It is a VRN, interest rate varies through time • Real risk that NES will not be able to refinance • Acquisition integration and rapid growth • TFI and Power Fuels may not be able to created the anticipated synergies • Government regulation and litigation • Former China water bottling business, which was disposed of in 2011, law suit could materially adversely affect NES

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