MARKET NEWS - Lafayette College
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Transcript MARKET NEWS - Lafayette College
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.