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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.
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.
slide41
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.
slide42
(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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