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General Body Meeting9/1/2010
Mutual Investment Club of Cornell
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Agenda
Welcome back Introduction to the team Club operations Previous investment pitches Opportunities to get involved Conclusion
Mutual Investment Club of Cornell
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The executive board
Jeffrey Hau Daniel Sherry Akshay Nagia Chirag Shah Melody Chu John Yoshida Jai Reddy
Samantha Dong
Terence Hu Derek
Creadore Andrew Verri David Wong David Shim Scott
Deuschle
Mutual Investment Club of Cornell
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What does our club do?
Manage money ~$50,000 portfolio Value orientation Long/short equity
Educate Semester-long
training program designed by Dan Sherry
Great for new members
Teaches fundamental principles
Mutual Investment Club of Cornell
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Analyst teams
Senior Analyst
Junior Analyst
Junior Analyst
Junior Analyst
Senior Analyst Have strong knowledge
of industry Generate investment
ideas Approve additions to
conviction list Manage pitch process
Junior Analyst Compile weekly industry
news Propose new companies
to add to conviction list Do fundamental
research to put investment pitches together
Help monitor current holdings
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Other ways to get involved
Newsletter Monthly editions Three types of articles: investment
pitches, new club initiatives, opinions on the economy
Writing for the website (blogging) More flexibility than newsletter More opinionated
Research reports Opportunity to produce investment theses
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So how do we choose our investments?
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TBFShort 20+ Year Treasury
Daniel Sherry
Mutual Investment Club of Cornell
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Original Thesis
Factor We think it will go: Causing interest rates to:
Monetary Policy Tighter Increase
Fiscal Policy Stay loose Increase
Saving Lower as recession eases
Increase
Capital Investment Higher as recession eases
Increase
Inflation Maybe up? Increase
X
X
-
X
X
• 10 year treasury rate at purchase: 3.42%
• 10 year rate now: 2.47%
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Monetary & Fiscal Policy
Monetary Policy: Never really as loose as we thought it was. Interest on reserves – 0.25% Monetary aggregates No tightening anytime soon – possible
loosening Fiscal Policy: you don’t have to outrun
the bear… Euro trouble
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M0 Money Supply
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M1 Money Supply
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M2 Money Supply
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Saving, Capex, and Inflation
Personal saving: not exciting. Capital investment: not picking up like
we thought. Inflation expectations: subdued, to say
the least.
5-year market inflation expectations
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Looking Forward
Fed’s options Explicit medium-term inflation target Lower the interest on reserves Additional quantitative easing Do nothing – continue promising to keep
rates low “for an extended period” None of these will increase rates, at
least in the short term.
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HXMHomex
Jai Reddy
Mutual Investment Club of Cornell
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Original Pitch
Thesis: Improvement in macroeconomic variables coupled with Homex’s competitive position makes for a substantial growth opportunity
Macro variables: GDP, employment, wages
Important for earnings acceleration and mortgage origination
Competitive position Leader in low income/entry level housing Geographically diverse Efficient building processes
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2010 Market Expectations and Implications
Economic growth to swing from -7% to 3% in 2010
Employment to expand 2.3% after drop of 3.9% in 2009
Demand side Growing salaries improve mortgage
affordability Employment growth increases potential
size of homebuyers market Supply side
Infonavit’s funding comes from taxes on salaries
Mutual Investment Club of Cornell
What changed?
Q4: Weak quarterly sales Change to a more conservative
strategy No geographic expansion during Q4 Downgrades by analysts
Though these may sound like too many negatives, they are all effects of a strategy to improve working capital management and free cash flow generation
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Mutual Investment Club of Cornell
Recent events & looking forward Strong revenues and margins in Q210
Due to strategically focusing in more profitable areas/demographics
Increases in FCF as planned part of their strategy
Increase in EBITDA Potential Catalysts
Surprises in economic growth expectations
Problems with technologies and leadership control
Changes in targets for mortgage origination
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Mutual Investment Club of Cornell
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CSCOCisco
John Yoshida
Mutual Investment Club of Cornell
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Cisco Systems, Inc.
Designs and sells technology and service for electronics, networking and communications Founded in 1984 developing and selling
routers
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Original Thesis (February 2010) Next-generation technologies are
poised to take advantage of both existing and new markets
Strong cash equivalents will lead to key strategic acquisitions
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Performance
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Earnings Update
EPS slightly beats expectations but… Sales forecast miss expectations “Unusual uncertainty” and “Mixed
Signals” Company hiring employees
NO CHANGE IN THESIS
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TEVATeva Pharmaceuticals
Samantha Dong
Mutual Investment Club of Cornell
TEVA- Overview
Originally pitched Nov 3, 2008 World’s largest generic drug maker
Market Cap: $47.37 BN Generic and branded pharmaceuticals,
active pharmaceutical ingredients (APIs) Principal Products: Copaxone
Original thesis: Upside: Recession proof, industry leader,
diversified pipeline, political environment, patent expiration
Downside: Growing competition
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Mutual Investment Club of Cornell
TEVA- Performance
Purchased: $43.02; sold half position @ ~$60
Current price: $50.621
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1 As of market close on 8/31/2010
Since pitched:
Since summer:
Mutual Investment Club of Cornell
TEVA- Recent News
Growth Licensed branded cancer drugs Acquisition with Ratiopharm: Europe
footprint Q2 Earning
up 53%, boosted by Copaxone sales FDA approved the first generic version
of Lovenox Sanofi-Aventis’ blood clot treatment Concern about generic version of
Copaxone
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Applications
Junior analyst applications will be accepted until September 10th
Apply online at www.cornell-micc.com Please speak with me if you’d like to
get involved in other ways
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Brain teaser
Three players enter a room and a red or blue hat is placed on each person’s head. The color of each hat is determined by a coin toss, with the outcome of one coin toss having no effect on the others. Each person can see the other players’ hats but not his own.
No communication of any sort is allowed, except for an initial strategy session before the game begins. Once they have had a chance to look at the other hats, the players must simultaneously guess the color of their own hats or pass. The group shares a hypothetical $3 million prize if at least one player guesses correctly and no players guess incorrectly.
The general problem is to find a strategy for the group that maximizes its chances of winning the prize.
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Answer
Come to the next meeting to find out…
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Conclusion
Next general body meeting will be Sept 15th where we will announce our junior analysts
First training session will be Sept 8th Thanks for stopping by!
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