Michigan Investment Michigan Investment AssociationAssociation

Stephen M. Ross School of Stephen M. Ross School of BusinessBusiness

September 18, 2005

6:00 pm to 7:00 pm

Tozzi Finance Center

Agenda

• How do you develop a “story”?

• The anatomy of a stock pitch

• Join iMpact Group

• Become a Member

• Investment Association Speaker

• Recruiting Timeline

How do you develop a “story”?

• Identify skills that make someone successful in the career you are pursuing

• Identify experiences that exhibit those skills• Discuss not only your passion for the markets, but

also the fact others recognize this passion• Discuss your choice of business school and your

activities since you have arrived• Finally, discuss why you like the firm

How do you develop a “story”?• Identify skills that make someone successful in the career you are pursuing

– Research• Attention to Detail• Big Picture Analysis• Analytical Ability• Communication skills• Quest for Knowledge• Writing Skills• Ability to take risk have an opinion

– Sales & Trading• Good interpersonal skills• Ability to think quickly on your feet• Take initiative• Cope in a stressful environment• Multi-task• Take risk and analyze it trend analysis• Critical Reading

– Investment Management• Risk Taker• Big Picture to analyze macro environment• Know how to measure risk• Ability to filter information (get rid of noise)• Relationship management

– Private Client Services• Entrepreneurial

How do you develop a “story”?

• Example outline for a story – University of Illinois– Worked at P&G

• Packaging Model (quantitative ability)• Global QcVQ (writing ability)

– Spent outside time doing something finance related• Read a lot about the markets• Borrowed a friends accounting book and started to read it• Taught JA classes to high school students• Even developed my own DCF models from what I read

– Even helped co-workers or would get questions from co-workers about the markets• Like companies that have self-inflicted pain in a good growth industry• Management of personal portfolio

– Michigan• Not only how to model, but what numbers to put in it• My strategy class has been great with helping me do this• Shown initiative through giving the fist stock pitch of the year at the Investment Club• Shown aptitude for stock pitching, by placing 2nd in the Investment Club Stock Pitch

Competition

How do you develop a “story”?

• Final Thoughts– Your story should be anywhere from:

• 30 seconds – elevator conversation

• 3 to 5 minutes – interview setting

– This is probably one of the most important aspects of recruiting…you will say your story many times throughout the recruiting process MAKE SURE YOU PRACTICE IT!!!

The anatomy of a stock pitch

• In a few weeks or few months you will asked in an interview…“What stocks do you like/follow?”

• You need an answer!• Ideally you should have 3 stocks to pitch for any

interview• Pitches can be about stocks you that you think will

go up (long ideas) or ones you believe will go down (short ideas)

The anatomy of a stock pitch

• Step 1: How to Select a Stock– The obvious:

• A holding in your real (or fictional) portfolio• You used to work/consult for at the company and like their prospects• You love an industry (e.g., automotive, cosmetics) and can talk about

it for days– If you are stuck, there are ~10,000 publicly traded companies in

the U.S. – but don’t necessarily pick the “big names” such as GE or Pfizer

• The company you are interviewing with may hold a position (or cover the company)

• Larger, well covered companies tend to elicit strong opinions– Watch CNBC to get ideas and use Tozzi resources to find reports

on companies and/or industries

The anatomy of a stock pitch

• Step 2: Decide on Approach– Top down approach

• General to specific

• Start with the macroeconomic, move to sector, then stock specifics

– Bottom up approach• Start with Stock fundamentals

The anatomy of a stock pitch

• Step 2: Decide on Approach– Top down approach

• Example:• Stock I like is:

– “Revlon: Cosmetic companies are defensive in the current economic environment, the sector is generally trading at a discount and Revlon is the best managed firm in the industry with a low multiple and high earnings quality”

– “Dell: Technology companies were the hardest hit in the recession, but I believe the sector will rebound in the next few quarters. Economic data indicates that commercial spending has increased and recent announcements have suggested a turnaround. Dell is currently best positioned to take advantage of the rebound as it has shifted its business in the past year to the corporate customer. The company’s negative cash conversion cycles. . .”

The anatomy of a stock pitch

• Step 2: Decide on Approach– Bottom up approach

• Example:• Stock I like is:

– “Dell: Dell is expected to earn $X this year and $Y in CY 0A and is trading at just 2 times sales. I think the stock is attractive for 3 reasons. 1. Agreement with Lexmark to market printers, 2. Negative cash conversion cycle 3. Strong mgmt team. I would be a big buyer of the stock below $XX and it should trade at ZZx FY0A estimates, and investors should look at increased corporate spending as a catalyst. . .”

The anatomy of a stock pitch

• Financial Measures to Consider– Current Price and 52 week H/L– Trailing P/E and Forward P/E estimates– Consensus EPS estimates and EPS growth– Financial ratios: current ratio, interest coverage– Valuation:– Multiples (EBIT, EBITDA)– Potentially run a DCF model– Consider technical screens (moving averages, relative

strength)

The anatomy of a stock pitch

• Non Financial Measures to Consider– Strength of management team and board composition– Earnings news and consensus opinion of results– Analyst opinions and recent upgrades/downgrades– What funds/institutions hold positions? Insider

buying/selling– Regulatory changes to industry– Technological changes/patents– Current news….if the company was in the WSJ last

week and you didn’t know, that sucks for you

The anatomy of a stock pitch

1) Name of Stock

2) One sentence description

3) Ticker/Exchange

4) Recent close and 52 week H/L

$$

Aim for 3 minutes, ideally less

Intro It’s a Buy because… The Close

1) Reason #1

2) Reason #2

3) Reason #3

1) Target price andwhy

2) Catalyst drivingStock (from section 2)

3) Valuation estimate

4) Risks

The anatomy of a stock pitch

• Stocks to Avoid– “Political stocks”– Companies that will have a public presentation

(earnings, conference call, analyst day) within 48 hours of your interview

– “Issue stocks” (ex: Delta and Northwest)– Stocks that require overly-technical

explanations

The anatomy of a stock pitch

• Final Thoughts…– Know your audience (value, growth, tech/non-tech):

Don’t pitch JNPR to a deep value investor!– Be enthusiastic and confident, not arrogant- remember

that the person across the table has, in most cases, years of experience doing this

– Be aware of the sector/industry in which your company resides – is it under/overvalued?

– Always keep in mind- what is the catalyst driving this specific stock? What unique insight am I bringing to the table?

Join iMpact Group

• http://www.bus.umich.edu/MyiMpact/

• Click on My Tools

• Click on My Personal Profile

• Click Edit Profile

• Under iMpact Groups click Add iMpact Group

• Join INVEST06 Click Save Changes

Become a Member!!!

• Either go to Ian McMullin after the meeting and pay your membership fee

OR

• Go to the Investment Club website and pay using the Paypal link: http://webuser.bus.umich.edu/Organizations/investmentclub/

Investment Association Speaker

• We are excited to announce that on OCTOBER 7TH, 2005, we will have our first set of alumni speakers

• PLEASE keep the date open and we will pass on more information as the event becomes finalized

Recruiting Timeline

• http://www.bus.umich.edu/StudentCareerServices/

• The Finance Club breakout sessions will address the recruiting timeline in more detail

• Spend some time NOW searching for companies in the database, it is not as easy as you think

Next Meeting

• September 25th, 2005 6-7 pm, Tozzi– Equity overview