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Friday January 31st, 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
• 4) BUY/SELL – RSG and MFC, both less then
1% of our portfolio.
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
• 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
• 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
By: Ryan McCormick
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
• 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
• 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
• 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
• 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
• 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
By: Sean O’toole
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?
• 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
• 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.)
• 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
• 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
• 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
By: Angel Stoychev and Joe Arrieta
Overview
Utilities, 0.00%
Conglomerates,
0.00%
Consumer,
7.52%
Financial, 8.74%
Technology,
20.82%
Services, 14.26%
Industrial, 13.01%
Healthcare,
17.08%
Materials, 12.80%
Technology – 20.82%
• Major companies: IBM (4.75%), Akamai
Technologies (2.56%), Microsoft (2.37%)
• Need exposure in: Multimedia and Graphics
Industrial – 13.01%
• Major companies: GE (4.91%), CAT (3.91),
Boeing (2.80%)
• Need exposure in: Heavy Construction,
Building Materials
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%
• Major companies: Gilead Sciences (5.16%),
United Health (3.84%), Medtronic (3.04%)
• Well exposed
Services – 12.52%
• Major companies: Expedia (4.23%), Union
Pacific (2.97%), Dollar Tree (2.73%)
• Need exposure in: Restaurants
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%
• Companies: Jarden Corp (2.77%), Clorox
(2.59%), Coca Cola (2.16%)
• Need exposure in: Automobile manufacturing,
Tobacco
Sectors to add
• Conglomerates
• Utilities – Water, Gas
SELL RSG
By: Tim Simon
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
•
•
•
•
•
•
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
• 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
• 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.
SELL ALL
MFC – Manulife (BUY)
By: Tim Simon
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, longterm care services, pension products, annuities,
mutual funds, and banking products.
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 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 derisking 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
• 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.