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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

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.


  • 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



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



Expe buy 300 shares

A Value Opportunity them in your portfolio?

(EXPE) – BUY 300 SHARES


Expedia company overview
Expedia Company Overview them in your portfolio?

  • 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 them in your portfolio?

  • 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) them in your portfolio?

  • 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 them in your portfolio?

  • 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 them in your portfolio?

  • 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 them in your portfolio?

  • 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 them in your portfolio?

  • 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 them in your portfolio?

  • 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 them in your portfolio?

  • 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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