General Body Meeting 9/1/2010. Mutual Investment Club of Cornell Agenda Welcome back Introduction to the team Club operations Previous investment

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


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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


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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


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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


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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


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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


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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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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CSCOCisco

John Yoshida


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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


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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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:


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!

Documents

General Body Meeting 9/1/2010. Mutual Investment Club of Cornell Agenda Welcome back Introduction to the team Club operations Previous investment