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Friday September 13th, 2013
2nd Meeting of Fall Semester
Lafayette College Investment Club
Announcements
• Finance Night – October 17th
• Opportunity to network with successful
Lafayette Alumni
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Speaker Friday November 8th 2013
Scott Littlejohn
Lafayette, AB, Economics, 1984
NYU Stern, MBA in Finance, 1991 [CPA - NY]
Meeting Agenda
1) Market Update by Othman Guennoun and
Ryan McCormick
2) Waste to Energy Educational presentation by
Stacey-Ann Pearson (Engineering Major)
3) Buy Presentation Expedia (EXPE)
MARKET NEWS
September 13TH 2013
Twitter Files for IPO
• Twitter has submitted S-1 form to begin IPO
“initial public offering”
• IPO = Stock Market Launch
• Private company  Public company
• Anyone can buy shares of the company
FED TAPERING
• Investors predict that Fed officials will reduce 85 billion a month
bond buying at September 17th-18th meeting.
• Prediction based on the fact that Ben Bernanke will be holding
a press conference on Sept 19th, after meeting (No press
conference scheduled after October meeting).
• Bond buying by FED also referred to as quantitative easing (QE)
has allowed the long term interest rates to remain low,
encouraging investors to invest a lot more. EXAMPLE: The 10
year Treasury note’s yield which fell to 2.936%
• Fed official Richard Fisher (Dallas Federal Reserve Bank
president): “There is an expectation that we will act in
September…” (against program, doesn’t think it does any good.
• Proposed course of action by several Fed officials:
* Reduce monthly bond purchases by a small amount.
Maybe by 10 billion (from 85 billion to 75 billion)
Watch results after action:
Job market improvement
Inflation rate improvement
• Nonfarm payroll figures not as high as expected
(169,000)
– Possible reason for Fed not to taper
“Today’s data, in combination with Syrian
uncertainties are likely to keep the US Fed on the
sidelines for now” Douglas Borthwick –
Chapdelaine Foreign Exchange NYC
APPLE’s new iPhones
• Apple (AAPL) reveals two new iPhones
• iPhone 5C starting at $99
• iPhone 5S --- fingerprint scanner and better
camera
• AAPL shares trade down 2% after
announcement.
Dow Jones Industrial Average Drops 3
Companies.
• Alcoa (AA), Hewlett-Packard (HPQ), and
Bank of America (BAC) dropped
• Replaced by Visa (V), Goldman Sachs (GS),
and Nike (NKE)
• Replaced because of low stock price of
existing companies
• Change effective Sept 20th at Market Close.
Walt Disney Co.
• Walt Disney Co. stock (DIS) rose 2.5%
yesterday after announcement of buying back
$8 billion worth of shares.
• Usually buyback at a higher than market price
• Shows they have a lot of cash to pay back
investors --- more investors interested as a
result.
Waste to Energy Technology (WtE)
How it may affect the energy sector
and our investment portfolio?
What is waste-to-energy
technology?
• A form of clean energy
• Conversion of non-recyclable waste
materials into electricity, heat or fuel
• Turning garbage into electricity!
Advantages of waste-to-energy:



Indefinite supply of waste
Reduces need for ‘dirty coal’ – cleans up the
earth
Reduces waste volume of landfill
Challenges with waste-to-energy:
• High initial cost
• Negative image (pollutants, emissions),
such as dioxins
Energy sector is huge, but why?
What are some of the uses of energy in
USA?
Electricity
 Transportation
 Industrial
 Residential
 Commercial

Energy market in US compared to
some other countries:
1 American consumes as much as:
• 2 English
• 3 Japanese
• 6 Mexicans
• 13 Chinese
• 31 Indians
• 307 Tanzanians
Washington State University
Related Investment club holdings
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ExxonMobil
Chevron
Dominion Resources
Denbury Resources
Generated revenue for big players > $175Billion, 2010
Projected effects of WtE on sector:
• WtE can be expected to
cut into the coal share
• Pass solar, wind and
geothermal energy in
renewable sources
• Put pressure on crude oil
companies with small
market share
Additional Explanation
• Electricity
How is it related to LIC portfolio?
ExxonMobil
Chevron
Denbury
Dominion Resources
• Revenue from
electricity generation
and natural gas sale
• The largest sources for • Electricity generated
primarily
from
coal
these three are oil and
(46%) and nuclear
natural gas
(41%)
• $12B plan to improve
and explore oil & gas
How is it related to LIC portfolio?
Dominion Resources
• Revenue from
electricity generation
and natural gas sale
• Electricity generated
primarily from coal
(46%) and nuclear
(41%)
• $12B plan to improve
current infras. to and
explore oil & gas
Denbury Resources
• Oil and natural gas
company
• Devoted to oil, gas
market – investment
in enhanced oil
recovery
• Focused on increasing
value of oil, gas
property
What plans would you make about
these holdings if you had them in
your portfolio?
A Value Opportunity
(EXPE) – BUY 300 SHARES
Expedia Company Overview
• Market Cap: 7 Billion
Last Sale: 51.18
• Based on gross bookings, Expedia Inc. is the
worlds largest online travel agent (OTA),
operating a portfolio of websites.
• Hotels.com, Hotwire, Trivago (Europe), Elong
• The Expedia Brand is one of the most wellknown and valuable brands in the travel
industry.
Stock Got Absolutely Whacked
• On July 26th, Expedia reported a poor Q2
missing on both EBITDA and Revenue.
• Revised Guidance to mid-single digit EBITDA
growth and cited headwinds with
competition.
• Management failed to mention this to
investors resulting in a “hate sale”, reducing
the market cap of the company by nearly 3
billion (stock down 30%).
• Company toured the street talked up back half
of year in June (margin story).
Why Now (VALUE)
• 1) Managements ability to guide the street
going forward is a one time fixable issue, they
have set the bar considerably low (single digit
EBITDA GROWTH)
• 2) The Stock Trades at a steep discount to its
competitors, 7.5x EBITDA, and 14x Forward
Earnings.
• 3) Nothing is fundamentally wrong with the
company, they are a brand player in a growing
market with investments in MOBILE, ETP
PROGRAM, and One time COSTS.
Reason #1
• Management is not in the business of losing
money, they are compensated based on
growth, if they fail to guide they lose money.
– JOHN MALONE LIBERTY MEDIA (12% STAKE)
• They have set their forward guidance to mid
single digit EBITDA growth (historically midteens). This is a VERY low bar.
• Guiding going forward is fixable and
management is credible (spoke with PM,
trader, analyst).
Reason #2
• On July 26th, EXPE traded 20x earnings and
12x Ebitda.
– Currently trades at a steep discount to those
levels.
• Priceline (main comp), trades 24 times
earnings and 14x Ebitda
• Orbitz (2nd Main comp), trades 23 times
earnings, and 15x Ebitda.
• STEEP discount to comps (hence value)
Reason #3
• The reason for the miss was considerable
investments into international companies
ELONG and Trivago.
– Elong is a Chinese search company (second
largest), a much needed diversification in a
growing market.
– Trivago is essential as Expedia is only a 22%
market share holder in Europe, also a growing
market.
• These Investment Costs were front half, back
half will be revenue drivers.
Growth Going Forward
• ETP Program – Drives Conversion, option to
pay at hotel or online (Merchant Program
Revolutionary).
• Mobile APP – By far the largest investor in
mobile growth (50 M app users globally),
industry moving that direction.
• International Growth – Acquisition of Trivago
will prove to be a one time cost and a great
investment.
THE RISK STORY
• The online travel business and travel demand
in general is linked to the economy. The global
economy deteriorated rapidly when many of
the world’s major economies fell into
recession.
• High unemployment at 7.5%, limited credit
availability and a cautious consumer may
hinder economic recovery.
• Management Fails to Guide well, and they
miss Q3.
Conclusion
• This is a value opportunity to buy a heavily
discounted stock in a volatile market.
• 1) Fixable Issue
• 2) Discount
• 3) Growth Going Forward
• We own ZERO travel industry
• BUY 300 EXPE (3% allocation), and have a nice
Friday knowing you found the gem of the year.