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Friday January 31 st , 2014

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

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  1. Friday January 31st, 2014 Lafayette College Investment Club

  2. 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.

  3. 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

  4. 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

  5. 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

  6. Market Update1/31/14 By: Ryan McCormick

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. Marijuana Industry By: Sean O’toole

  14. Legalization boom • 2 states legal • Decriminalization • Medical Marijuana • Continuing legalization trend • Road blocks: • State infrastructure • Banks, legal, accounting, and payrolls firms

  15. 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

  16. 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

  17. 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)

  18. 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

  19. 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

  20. Sectors By: Angel Stoychev and Joe Arrieta

  21. Overview

  22. Technology – 20.82% • Major companies: IBM (4.75%), Akamai Technologies (2.56%), Microsoft (2.37%) • Need exposure in: Multimedia and Graphics

  23. Industrial – 13.01% • Major companies: GE (4.91%), CAT (3.91), Boeing (2.80%) • Need exposure in: Heavy Construction, Building Materials

  24. Materials – 12.80% • Major companies: Exxon (3.49%), Southern Copper (3.19%), KMI (2.39%) • Need exposure in: Metals and Minerals, Chemicals

  25. Healthcare – 17.08% • Major companies: Gilead Sciences (5.16%), United Health (3.84%), Medtronic (3.04%) • Well exposed

  26. Services – 12.52% • Major companies: Expedia (4.23%), Union Pacific (2.97%), Dollar Tree (2.73%) • Need exposure in: Restaurants

  27. 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

  28. Consumer – 7.52% • Companies: Jarden Corp (2.77%), Clorox (2.59%), Coca Cola (2.16%) • Need exposure in: Automobile manufacturing, Tobacco

  29. Sectors to add • Conglomerates • Utilities – Water, Gas

  30. SELL RSG By: Tim Simon

  31. 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.

  32. 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

  33. 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.

  34. 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.

  35. SELL ALL

  36. MFC – Manulife (BUY) By: Tim Simon

  37. 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.

  38. 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

  39. 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.

  40. 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.

  41. (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.

  42. 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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