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Friday January 31 st , 2014. Lafayette College Investment Club. Meeting Agenda. 1) Market Update 2) Portfolio Overview – Sector strength and how we are positioned 3) Medical Marijuana – An in depth look into a fascinating new sector

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Friday january 31 st 2014

Friday January 31st, 2014

Lafayette College Investment Club


Meeting agenda
Meeting Agenda

  • 1) Market Update

  • 2) Portfolio Overview – Sector strength and how we are positioned

  • 3) Medical Marijuana – An in depth look into a fascinating new sector

  • 4) BUY/SELL – RSG and MFC, both less then 1% of our portfolio.


Goals for last semester
Goals for Last Semester

  • Review of Last Semesters Goals

  • 1) Our objective was to make the portfolio 100% equity.

  • 2) Allocate our cash to either make positions 2% or greater (Move the needle issue)

  • 3) Generate Solid Returns


Year of year performance
Year of Year Performance

  • We grew the portfolio 82,000 dollars, we currently have 482k in the market, 18k in cash.

  • - We beat the benchmark by 3.5 percent during the semester.

  • - We successfully converted the portfolio into 100% equity.

  • - Every position in the portfolio is greater then 2% apart from the two I will present today.

  • All in all we met all of our goals


Goals going forward
Goals Going Forward

  • 1) We want to step back and research our sectors heavily.

  • 2) We want to really understand how we are positioned relative to the obstacles that the markets face in 2014.

  • 3) Actively encourage newer students and members to participate and learn.

  • 4) Find our legacy for the 2014-2015 Board


Market update 1 31 14

Market Update1/31/14

By: Ryan McCormick


Improving economy
Improving Economy

  • Expect unemployment at 6.5% by 2015

    Chicago Fed President Evans sees 3% growth

    Sentiment based upon:

    • Uptick in consumer spending

    • Housing prices

    • Strengthening job market


Fed watch
Fed Watch

  • Janet Yellen confirmed as Fed chief

  • 1st woman to led bank in 100 year history

  • Trimmed QE – Now $65 billion

  • Taper + Economy = change in investing strategy


International headlines
International Headlines

  • China looks to cut down on Shadow Banking

  • Attempts to limit loans by non-formal banks

  • Increases risk to an already slowing economy

  • Many local governments are indebted

  • Threatens their financial viability


Europe
Europe

  • European growth continues to stagnate

  • ECB President Mario Draghi pledged “further decisive action” as necessary

  • Interest rates at .25%

  • Avoid deflation, which hurts consumer spending, prices, and investment


Developing countries
Developing Countries

  • Investors traded emerging market currencies

  • Reflects pull-back from riskier assets

    • Includes to U.S. stock market

    • Monetary Policy driver of sentiment

    • Puts Central Banks in difficult situation


Business spotlight
Business Spotlight

  • Google bought Nest Labs, Inc. for $3.2 Billion

  • 2nd largest acquisition by company

  • Nest produces “smart” thermostats, smoke alarms

  • Highlights Google’s continued expansion


Marijuana industry

Marijuana Industry

By: Sean O’toole


Legalization boom
Legalization boom

  • 2 states legal

    • Decriminalization

    • Medical Marijuana

  • Continuing legalization trend

  • Road blocks:

    • State infrastructure

    • Banks, legal, accounting, and payrolls firms


How big is this industry in us
How big is this industry in US?

  • 10-200 billion (i.e. we have no clue)

    • 1 million per day in CO

    • Majority: 45 billion

    • DEA puts it around 100 billion

  • Perspective:

    • Alcohol: 188 billion

      • 99-Beer, 61-spirits, 27-wine per 2009

    • Tobacco: 75 Billion

      • 71-Cigarettes


Current market outlook
Current Market outlook

  • Incredible amount of risk

    • Unlisted and unregulated pennystocks

    • “Pump and dump” boiler shops

    • Many companies are unprofessional and uneducated

      • Hippies

      • Company logos are grateful dead, joints, cannabis leaves

      • No formal education


Current market outlook cont
Current Market Outlook (cont.)

  • Incredible Amount of opportunity

    • Mainly venture capitalism

    • Incredibly risky stocks (ILLADVISED)

      • Medbox (MDBX)

      • GW Pharmaceuticals (GWP.L)

      • CannaVest Corp (CANV)

    • Researched Base stocks

      • Still not good

        • Vape holdings (PLPED)

        • Cannabis Sativa (CBDS)


Follow brendan kennedy
Follow Brendan Kennedy

  • Started privateer holdings

  • Has been doing research into the industry for years

  • Business experience

  • Owns stake in 3 companies

    • Leafly: Yelp for weed

    • Lafitte Ventures: Growing Operation

    • Arbormain: Growroom leasing


How else can we capitalize on it
How else can we capitalize on it

  • Research, keep on it and look for who will seize the market

  • Speculations

    • Look into tobacco companies

    • Pharmaceutical companies

    • It may be government run

    • Look for supporting industries

  • DON’T JUST GO OUT THERE AND BUY A PENNY STOCK


Sectors

Sectors

By: Angel Stoychev and Joe Arrieta



Technology 20 82
Technology – 20.82%

  • Major companies: IBM (4.75%), Akamai Technologies (2.56%), Microsoft (2.37%)

  • Need exposure in: Multimedia and Graphics


Industrial 13 01
Industrial – 13.01%

  • Major companies: GE (4.91%), CAT (3.91), Boeing (2.80%)

  • Need exposure in: Heavy Construction, Building Materials


Materials 12 80
Materials – 12.80%

  • Major companies: Exxon (3.49%), Southern Copper (3.19%), KMI (2.39%)

  • Need exposure in: Metals and Minerals, Chemicals


Healthcare 17 08
Healthcare – 17.08%

  • Major companies: Gilead Sciences (5.16%), United Health (3.84%), Medtronic (3.04%)

  • Well exposed


Services 12 52
Services – 12.52%

  • Major companies: Expedia (4.23%), Union Pacific (2.97%), Dollar Tree (2.73%)

  • Need exposure in: Restaurants


Financial 9 49
Financial – 9.49%

  • Major companies: Goldman Sachs (2.83%), JP Morgan Chase (2.39%), BNY Mellon (1.29%)

  • Need exposure in: Property and Casualty Insurance


Consumer 7 52
Consumer – 7.52%

  • Companies: Jarden Corp (2.77%), Clorox (2.59%), Coca Cola (2.16%)

  • Need exposure in: Automobile manufacturing, Tobacco


Sectors to add
Sectors to add

  • Conglomerates

  • Utilities – Water, Gas


Sell rsg

SELL RSG

By: Tim Simon


Rsg republic services inc
RSG – Republic Services Inc

  • Sector - Industrials

  • Environmental & Facilities Services

  • This company became the second largest U.S. provider of solid waste services in North America when it acquired Allied Waste Industries in December 2008.


Fundamentals
Fundamentals

  • 12 x EBITDA

  • 16 x Earnings

  • 1.59 B FCF

  • Highly Levered

  • 22% Insider Held

  • Huge Short Interest

    • Which could lead to squeeze if sent. Shifts from negative to positive.

  • Flirting with its 52-week high.

  • Does not pay high yield relative to industry


Bull case
Bull Case

  • Gross margins should exceed 39% in 2014, up from near 38% projected for 2013, reflecting higher pricing and a better mix of landfill volume.

  • 2% organic revenue growth in 2013, driven by higher core prices, while C&D (construction & demolition) roll-off volume benefits from the housing recovery. Further rebound in industrial special waste landfill volume into 2014, while recycling commodity prices stabilize at low levels.

  • Expecting core pricing to continue to drive top-line organic growth despite a still-competitive environment.


Bear case
Bear Case

  • Slower-than-expected recovery in the housing market and economy, a decline in the customer retention rate due to competitive pricing, a rapid decline in commodity recycling prices, and sharply higher fuel and commodity costs.

  • Recovery slows could present challenging headwinds for RSG.

  • Stock is expensive relative to peers, and has been a laggard to comps.



Mfc manulife buy

MFC – Manulife (BUY)

By: Tim Simon


Manulife mfc
Manulife (MFC)

  • Manulife Financial Corporation, together with its subsidiaries, provides financial protection and wealth management products and services to individual, corporate, and business customers primarily in Asia, Canada, and the United States.

  • Its products and services include individual life insurance, group life and health insurance, long-term care services, pension products, annuities, mutual funds, and banking products.


Fundamentals1
Fundamentals

  • Trades in line as far as multiples are concerned relative to industry.

  • Industry Average PE: 12 x

  • MANULIFE: 12x

  • EV/EBITDA: 6x (Cheap Relative to Industry)

  • Not highly levered compared to industry

  • 24 B in cash


Bull case1
Bull Case

  • Strong brand and distribution platform Globally and expanding market share in other parts of Asia and Japan.

  • They have gone through the process of de-risking over the course of the past 18 months, by taking off interest-rate sensitive products.

  • Post sale of its reinsurance business they are poised to have a strong cap ratio.


Risk

  • Low interest rate environment is dangerous for Manulife

  • Cap Ratio requirements may result in some potential downside

  • One franchise ties a lot of their capital which can expose them to duration risk.


(Buy)

  • Fair value is above 18 a share, stock currently trades at a discount relative to peers on an EV/EBITDA multiple of 6.

  • We have cushion here to buy a cheap stock, that has plenty of growth targets.

  • RATES THESIS: Rates will sell off long term, making Manulife a safe investment in a higher interest rate environment.


Thank you
Thank you

  • Please leave your suggestions at the front of the room, and board meetings are now open on Tuesdays from 12:15-1:00 pm for those who are interested in running for positions in the last weeks of the spring.


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