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Friday March 28 th , 2014

Friday March 28 th , 2014. Lafayette College Investment Club. Announcements. 1) The BAT Test April 5 th , 2014 10:00 AM in Engineering Building Acopian - 223B Register at www.takethebat.com 2) Mentor Program Wednesday April, 2 nd in TBD classroom

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Friday March 28 th , 2014

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  1. Friday March 28th, 2014 Lafayette College Investment Club

  2. Announcements • 1) The BAT Test • April 5th, 2014 10:00 AM in Engineering Building Acopian - 223B • Register at www.takethebat.com • 2) Mentor Program • Wednesday April, 2nd in TBD classroom • All are welcome announcements to follow via Email with instructions • Pizza and Soda provided • 3) Trivia • I will ask a trivia question at the end of the meeting • Winner takes home - Investment Club Fleece • 4) Board Positions Opened • We are graduating 5 spots • We had a mandatory meeting already but anyone is welcomed to run • 5) Board Meetings still open on Mondays at 12:15 pm in Simon Lobby • We encourage all ideas and backgrounds

  3. Meeting Agenda • 1) Market Update – Ryan McCormick • 2) Portfolio Update – Tim Simon • 3) Educational Piece – Craig Scheuerle • 4) CLOROX – Sell pitch by Angel Stoychev

  4. Market Update 3/28/2014 By: Ryan McCormick

  5. Fannie Mae / Freddie Mac • Proposal comes 6 years after Gov. rescue • New mortgage securities / lenders take initial losses • Private entities can purchase Gov. guarantees • Attempts to prevent careless lending

  6. Employment Data • National quit rate fell to 1.7% in January • 1st drop in quits rate since March 2013 • Indicates economy slowed over the winter • Quits rate is more important considering questionable unemployment data

  7. No Quick Increase in Hiring • Companies continue to increase spending • Encouraged by an end to gridlock in D.C. • CEOs do not project an increase in hiring • Turmoil in Russia / Ukraine hurt hiring • Global companies concerned with sales

  8. Federal Reserve • Policy makers debate how to communicate future path of interest rates • Had promised to raise rates when U=6.5% • Offer broad assurances, not specific number • Want to consider wider range of indicators • Could hurt Fed’s future credibility

  9. Yellen Comments • Yellen announced rates could rise 6 months after QE ends • Rattled markets causing stock prices to fall • Shows how sensitive markets are to the Fed • Yellen has difficult challenge with guidance

  10. Portfolio Update Both Prior and Post Spring Break By: Tim Simon

  11. Caterpillar INC: CAT • 4.02% • Up 15.63% In past 3 months • Sales of construction equipment rose despite weather conditions

  12. General Electric Co: GE • 4.72% • Down 1.1% in past 3 months • $3 billions in bond sales • Signed one year agreement with NYPA

  13. UnitedHealth Group Inc: UNH • 3.96% • Up 6.72% last 3 months • In Feb online bill payment grows to more than 50,000

  14. Biggest Gainer – AKAM 24%

  15. Biggest Loser – Baidu down 15%

  16. Overall Portfolio • Month over Month – We are roughly down -1.05% give or take a few basis points. The benchmark is down roughly -5.25%. • YTD – We are up 30 basis points where the market is up 78 basis points. • Our biggest concern is the 5% allocation into GILD which is down roughly 13% this month.

  17. The Sell Side By: Craig Scheuerle

  18. I want to work for an investment bank…..

  19. Main Components

  20. Investment Banking

  21. Sales and Trading

  22. Private Wealth Management

  23. Investment Banks serve as intermediaries between providers and users of capital Chinese Wall Strategic advisory Securities underwriting Sales & Trading Investment Banking Users of capital Providers of Capital Research • Corporations • Governments • Municipalities • Individuals • Pension Funds • Insurance Companies • Asset Managers • Corporate Treasuries • Sovereign Wealth Funds Private side Public side

  24. IB Overview A B

  25. Overview of Investment Banking Capital Markets Advisory • Equity capital-raising • Initial public offerings (IPOs) • Follow-on offerings • Equity-linked (convertible) • Debt capital-raising • High-grade or investment grade • High-yield • Syndicated loans • Tax-exempt • Mergers & Acquisitions • Buyside • Sellside • Spin-offs / Splitoffs / Carve-outs • Hostile defense • Hostile takeovers / proxy fights • Joint Ventures • Restructuring • Ratings

  26. What Does An Investment Banker Do? Origination Execution • Client Relationship Management • Ongoing dialogue on financial markets, industry developments, new products • Long-term relationship as advisor to Senior Management and Boards • Idea Generation and Problem Solving • Strategic Alternatives • Capital Raising • Optimizing Capital Structure • Risk Management, Dividend Policy • Assessment Of Opportunities • Financial Analysis • Communication • Management, Board of Directors • Internal Committees • Identify Potential Investors • Negotiation / Structuring Transactions • Due Diligence • Documentation

  27. Investment Banking Groups Capital Markets Industry Coverage Product • Equity Capital Markets • Debt Capital Markets • Tax-exempt • Leveraged Finance • Securitized Products • Consumer & Retail • Healthcare • Technology • Media & Telecom • Industrials • Natural Resources • Real Estate • M&A • Corporate Finance “Markets” “Technical”

  28. Investment Banking Competitive Landscape Bulge bracket Middle Market Boutique Low Capabilities High

  29. Sell Clorox By: Angel Stoychev

  30. CLX Overview • Produces laundry additives, bleach, stain fighters, color boosters, home-care products • P/E = 20 • Beta = .4 • Dividend yield = 3.6% • Last price = 87$ • Currently 2.5% of the portfolio

  31. Over leverage • Total Debt = 2.51B • Total Cash = 341M • Total Debt/Equity = 1,610 • Current Ratio = 1.27 • Interest Coverage Ratio = Interest Expense/EBIT= 20%

  32. Balance Sheet Net Tangible Assets = (1,586,000) Assets Liabilities Stockholder Equity 4,311,000 4,165,000 146,000

  33. Bad Cash Flow Management • Dividends Paid = 335M • Cash Flow from Operating Activities = 775M • Net Cash Flow Change = 32M

  34. Stagnation • Revenue increased at 1.2% annually • EPS flat or declining in recent quarters • 12-mo stock performance flat

  35. Management, Insider transactions • Economic profit = Earnings from continuing ops + Interest Expense - Income tax expense - Capital charge • Insider closing out positions • 8,000 shares sold in the last 24 weeks (2 weeks worth of daily volume)

  36. Sell-side coverage • UBS (Sell), Goldman Sachs (Sell), Credit Suisse (Underperform)…

  37. Summary • Over leverage + Stagnation = Lagger • Replace with a company that will benefit from improvement in the economy

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