Friday september 13 th 2013 2 nd meeting of fall semester
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Friday September 13 th, 2013 2 nd Meeting of Fall Semester. Lafayette College Investment Club. Announcements. Finance Night – October 17 th Opportunity to network with successful Lafayette Alumni Speaker Friday November 8 th 2013 Scott Littlejohn Lafayette, AB, Economics, 1984

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Friday September 13 th, 2013 2 nd Meeting of Fall Semester

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Friday september 13 th 2013 2 nd meeting of fall semester

Friday September 13th, 2013 2nd Meeting of Fall Semester

Lafayette College Investment Club


Announcements

Announcements

  • Finance Night – October 17th

  • Opportunity to network with successful Lafayette Alumni

  • Speaker Friday November 8th 2013

  • Scott Littlejohn

  • Lafayette, AB, Economics, 1984

  • NYU Stern, MBA in Finance, 1991 [CPA - NY]


Meeting agenda

Meeting Agenda

1) Market Update by Othman Guennoun and Ryan McCormick

2) Waste to Energy Educational presentation by Stacey-Ann Pearson (Engineering Major)

3) Buy Presentation Expedia (EXPE)


Market news

MARKET NEWS

September 13TH 2013


Twitter files for ipo

Twitter Files for IPO

  • Twitter has submitted S-1 form to begin IPO “initial public offering”

  • IPO = Stock Market Launch

  • Private company  Public company

  • Anyone can buy shares of the company


Fed tapering

FED TAPERING

  • Investors predict that Fed officials will reduce 85 billion a month bond buying at September 17th-18th meeting.

  • Prediction based on the fact that Ben Bernanke will be holding a press conference on Sept 19th, after meeting (No press conference scheduled after October meeting).

  • Bond buying by FED also referred to as quantitative easing (QE) has allowed the long term interest rates to remain low, encouraging investors to invest a lot more. EXAMPLE: The 10 year Treasury note’s yield which fell to 2.936%

  • Fed official Richard Fisher (Dallas Federal Reserve Bank president): “There is an expectation that we will act in September…” (against program, doesn’t think it does any good.


Friday september 13 th 2013 2 nd meeting of fall semester

  • Proposed course of action by several Fed officials:

    * Reduce monthly bond purchases by a small amount. Maybe by 10 billion (from 85 billion to 75 billion)

    Watch results after action:

    Job market improvement

    Inflation rate improvement

  • Nonfarm payroll figures not as high as expected (169,000)

    • Possible reason for Fed not to taper

      “Today’s data, in combination with Syrian uncertainties are likely to keep the US Fed on the sidelines for now” Douglas Borthwick – Chapdelaine Foreign Exchange NYC


Apple s new iphones

APPLE’s new iPhones

  • Apple (AAPL) reveals two new iPhones

  • iPhone 5C starting at $99

  • iPhone 5S --- fingerprint scanner and better camera

  • AAPL shares trade down 2% after announcement.


Dow jones industrial average drops 3 companies

Dow Jones Industrial Average Drops 3 Companies.

  • Alcoa (AA), Hewlett-Packard (HPQ), and Bank of America (BAC) dropped

  • Replaced by Visa (V), Goldman Sachs (GS), and Nike (NKE)

  • Replaced because of low stock price of existing companies

  • Change effective Sept 20th at Market Close.


Walt disney co

Walt Disney Co.

  • Walt Disney Co. stock (DIS) rose 2.5% yesterday after announcement of buying back $8 billion worth of shares.

  • Usually buyback at a higher than market price

  • Shows they have a lot of cash to pay back investors --- more investors interested as a result.


Waste to energy technology wte

Waste to Energy Technology (WtE)

How it may affect the energy sector and our investment portfolio?


What is waste to energy technology

What is waste-to-energy technology?

  • A form of clean energy

  • Conversion of non-recyclable waste materials into electricity, heat or fuel

  • Turning garbage into electricity!


Challenges with waste to energy

Challenges with waste-to-energy:

Advantages of waste-to-energy:

  • Indefinite supply of waste

  • Reduces need for ‘dirty coal’ – cleans up the earth

  • Reduces waste volume of landfill

  • High initial cost

  • Negative image (pollutants, emissions), such as dioxins


Energy sector is huge but why

Energy sector is huge, but why?

What are some of the uses of energy in USA?

  • Electricity

  • Transportation

  • Industrial

  • Residential

  • Commercial


Energy market in us compared to some other countries

Energy market in US compared to some other countries:

1 American consumes as much as:

  • 2 English

  • 3 Japanese

  • 6 Mexicans

  • 13 Chinese

  • 31 Indians

  • 307 Tanzanians

Washington State University


Related investment club holdings

Related Investment club holdings

  • ExxonMobil

  • Chevron

  • Dominion Resources

  • Denbury Resources

Generated revenue for big players > $175Billion, 2010


Projected effects of wte on sector

Projected effects of WtE on sector:

  • WtE can be expected to cut into the coal share

  • Pass solar, wind and geothermal energy in renewable sources

  • Put pressure on crude oil companies with small market share


Additional explanation

Additional Explanation

  • Electricity


How is it related to lic portfolio

How is it related to LIC portfolio?

ExxonMobil

Chevron

Denbury

  • The largest sources for these three are oil and natural gas

Dominion Resources

  • Revenue from electricity generation and natural gas sale

  • Electricity generated primarily from coal (46%) and nuclear (41%)

  • $12B plan to improve and explore oil & gas


How is it related to lic portfolio1

How is it related to LIC portfolio?

Denbury Resources

  • Oil and natural gas company

  • Devoted to oil, gas market – investment in enhanced oil recovery

  • Focused on increasing value of oil, gas property

Dominion Resources

  • Revenue from electricity generation and natural gas sale

  • Electricity generated primarily from coal (46%) and nuclear (41%)

  • $12B plan to improve current infras. to and explore oil & gas


What plans would you make about these holdings if you had them in your portfolio

What plans would you make about these holdings if you had them in your portfolio?


Expe buy 300 shares

A Value Opportunity

(EXPE) – BUY 300 SHARES


Expedia company overview

Expedia Company Overview

  • Market Cap: 7 Billion Last Sale: 51.18

  • Based on gross bookings, Expedia Inc. is the worlds largest online travel agent (OTA), operating a portfolio of websites.

  • Hotels.com, Hotwire, Trivago (Europe), Elong

  • The Expedia Brand is one of the most well-known and valuable brands in the travel industry.


Stock got absolutely whacked

Stock Got Absolutely Whacked

  • On July 26th, Expedia reported a poor Q2 missing on both EBITDA and Revenue.

  • Revised Guidance to mid-single digit EBITDA growth and cited headwinds with competition.

  • Management failed to mention this to investors resulting in a “hate sale”, reducing the market cap of the company by nearly 3 billion (stock down 30%).

  • Company toured the street talked up back half of year in June (margin story).


Why now value

Why Now (VALUE)

  • 1) Managements ability to guide the street going forward is a one time fixable issue, they have set the bar considerably low (single digit EBITDA GROWTH)

  • 2) The Stock Trades at a steep discount to its competitors, 7.5x EBITDA, and 14x Forward Earnings.

  • 3) Nothing is fundamentally wrong with the company, they are a brand player in a growing market with investments in MOBILE, ETP PROGRAM, and One time COSTS.


Reason 1

Reason #1

  • Management is not in the business of losing money, they are compensated based on growth, if they fail to guide they lose money.

    • JOHN MALONE LIBERTY MEDIA (12% STAKE)

  • They have set their forward guidance to mid single digit EBITDA growth (historically mid-teens). This is a VERY low bar.

  • Guiding going forward is fixable and management is credible (spoke with PM, trader, analyst).


Reason 2

Reason #2

  • On July 26th, EXPE traded 20x earnings and 12x Ebitda.

    • Currently trades at a steep discount to those levels.

  • Priceline (main comp), trades 24 times earnings and 14x Ebitda

  • Orbitz (2nd Main comp), trades 23 times earnings, and 15x Ebitda.

  • STEEP discount to comps (hence value)


Reason 3

Reason #3

  • The reason for the miss was considerable investments into international companies ELONG and Trivago.

    • Elong is a Chinese search company (second largest), a much needed diversification in a growing market.

    • Trivago is essential as Expedia is only a 22% market share holder in Europe, also a growing market.

  • These Investment Costs were front half, back half will be revenue drivers.


Growth going forward

Growth Going Forward

  • ETP Program – Drives Conversion, option to pay at hotel or online (Merchant Program Revolutionary).

  • Mobile APP – By far the largest investor in mobile growth (50 M app users globally), industry moving that direction.

  • International Growth – Acquisition of Trivago will prove to be a one time cost and a great investment.


The risk story

THE RISK STORY

  • The online travel business and travel demand in general is linked to the economy. The global economy deteriorated rapidly when many of the world’s major economies fell into recession.

  • High unemployment at 7.5%, limited credit availability and a cautious consumer may hinder economic recovery.

  • Management Fails to Guide well, and they miss Q3.


Conclusion

Conclusion

  • This is a value opportunity to buy a heavily discounted stock in a volatile market.

  • 1) Fixable Issue

  • 2) Discount

  • 3) Growth Going Forward

  • We own ZERO travel industry

  • BUY 300 EXPE (3% allocation), and have a nice Friday knowing you found the gem of the year.


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