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General Body Meeting 9/1/2010
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Mutual Investment Club of Cornell Agenda Welcome back Introduction to the team Club operations Previous investment pitches Opportunities to get involved Conclusion 2
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Mutual Investment Club of Cornell The executive board Jeffrey Hau Daniel Sherry Akshay Nagia Chirag Shah Melody Chu John Yoshida Jai Reddy 3 Samantha Dong Terence Hu Derek Creadore Andrew Verri David Wong David Shim Scott Deuschle
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Mutual Investment Club of Cornell What does our club do? Manage money ~$50,000 portfolio Value orientation Long/short equity 4 Educate Semester-long training program designed by Dan Sherry Great for new members Teaches fundamental principles
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Mutual Investment Club of Cornell Analyst teams 5 Senior 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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Mutual Investment Club of Cornell 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 6
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Mutual Investment Club of Cornell So how do we choose our investments? 7
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Mutual Investment Club of Cornell TBF Short 20+ Year Treasury Daniel Sherry 8
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Mutual Investment Club of Cornell Original Thesis FactorWe think it will go:Causing interest rates to: Monetary PolicyTighterIncrease Fiscal PolicyStay looseIncrease SavingLower as recession easesIncrease Capital InvestmentHigher as recession easesIncrease InflationMaybe up?Increase XX-XXXX-XX 10 year treasury rate at purchase: 3.42% 10 year rate now: 2.47% 9
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Mutual Investment Club of Cornell 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 10
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Mutual Investment Club of Cornell M0 Money Supply 11
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Mutual Investment Club of Cornell M1 Money Supply 12
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Mutual Investment Club of Cornell M2 Money Supply 13
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Mutual Investment Club of Cornell 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 14
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Mutual Investment Club of Cornell 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. 15
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Mutual Investment Club of Cornell HXM Homex Jai Reddy 16
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Mutual Investment Club of Cornell 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 17
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Mutual Investment Club of Cornell 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 18
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Mutual Investment Club of Cornell 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 19
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Mutual Investment Club of Cornell 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 20
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Mutual Investment Club of Cornell CSCO Cisco John Yoshida 21
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Mutual Investment Club of Cornell Cisco Systems, Inc. Designs and sells technology and service for electronics, networking and communications Founded in 1984 developing and selling routers 22
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Mutual Investment Club of Cornell 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 23
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Mutual Investment Club of Cornell Performance 24
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Mutual Investment Club of Cornell Earnings Update EPS slightly beats expectations but… Sales forecast miss expectations “Unusual uncertainty” and “Mixed Signals” Company hiring employees NO CHANGE IN THESIS 25
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Mutual Investment Club of Cornell TEVA Teva Pharmaceuticals Samantha Dong 26
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Mutual Investment Club of Cornell 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 27
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Mutual Investment Club of Cornell TEVA- Performance Purchased: $43.02; sold half position @ ~$60 Current price: $50.62 1 28 1 As of market close on 8/31/2010 Since pitched: Since summer:
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Mutual Investment Club of Cornell 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 29
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Mutual Investment Club of Cornell Applications Junior analyst applications will be accepted until September 10 th Apply online at www.cornell-micc.com Please speak with me if you’d like to get involved in other ways 30
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Mutual Investment Club of Cornell 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. 31
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Mutual Investment Club of Cornell Answer Come to the next meeting to find out… 32
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Mutual Investment Club of Cornell Conclusion Next general body meeting will be Sept 15 th where we will announce our junior analysts First training session will be Sept 8 th Thanks for stopping by! 33
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