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Agenda
Review of Multiples
How A Market Works Earnings Reports and Surprises Company Size and Industry Flash Crash
Multiples Review
We touched on three multiples in the previous workshops: NAME THEM! How are they calculated? P/E P/B P/S
Drink Industry
Aerospace Industry
P/E = 967.21x P/B = 16.12x P/S = 17.51x P/E = 58.43x P/B = 8.34x P/S = 9.92x
Tech Industry
So
Low price multiples designate an undervalued company in industries that grow steadily, but not at huge rates High price multiples represent a markets expectations of future success in high growth industries like technology. High price multiples in industries with low year-to-year growth are indicative of a company that is overvalued.
Technical Does the company make relatively strong revenues and profits? Overall Market Sentiment Does the market think this company will be strong/profitable in the future?
Stock Price
Earnings Reports
Every quarter companies issue a report in which they show how much revenue, costs, profit they made, much like an annual report. Before these quarterly statements, equity analysts predict the earnings per share the company will announce. Investors price in these predictions leading into the earnings report.
Pricing In
An assumption of the markets that says at any given time, a companys stock price is a reflection of all available information and a combination of all future expectations of that company.
In English, this means we expect a stock price to stay where it is unless something the market (all other investors) isnt expecting suddenly occurs.
What if
What would happen if UAL earned $1.51 per share? Would the share price go up or down? What would happen if UAL earned $1.50 per share? Would share price go up or down?
We discussed what moves a stock price: supply and demand of the actual stock. We looked at how a stock price is calculated: by looking the last completed trade. We talked about how the market prices in all available information into a stocks price We looked at how earnings reports and news can change a stocks price by forcing the market to price in new information
Micro-Cap
Nano-Cap
Different Industries
Financial Services- Medium Growth, depends on consumer confidence Global Industrials- Low Growth, Stable (Boeing, DuPont) Technology/Telecommunications- High Growth, High Margin, Risky, constantly evolving (Apple, AT&T) Health Care- Lots of M&A activity, medium growth, dependent on patent timelines (Pfizer, Eli Lilly) Consumer Goods (Discretionary and Staples)-Stable, low growth, dependent on blockbuster goods (Kellogg, P&G) Energy- Medium growth, moves with oil prices, energy demand is used as an indicator of the overall market Materials- Strong indicator of the overall market, demand for materials shows growth
Financial Services
Examples: Goldman Sachs, Bank of America, JP Morgan Chase, Wells Fargo, Citigroup Typically have mid to low growth year to year Dependent on interest rates to make money (higher interest rates mean they make more money) Very dependent on the overall consumer confidence in the economy
Global Industrials
Produce goods related to manufacturing, aerospace and defense, and construction Examples: Caterpillar, Boeing, 3M Largely driven by supply and demand for building construction, which is also a measure of growth in the economy (more buildings being built shows healthy spending which typically occurs in times of prosperity)
Health Care
Design, manufacture, and sell drugs to hospitals, governments, and pharmacies Reliant upon patent timelines (once a patent expires, the company has to compete with other generic drugs, driving down profit) Very active in Mergers and Acquisitions to get new patents, as well as in lawsuits disputing patents. Examples: Pfizer, Eli Lilly, Abbott Labs
Consumer Goods
Split into discretionary (which are higher growth, less stable in economic downturn) and staples (which are more stable with very low growth). These companies follow the overall market fairly closely. Examples: McDonalds, Kellogg, Coca-Cola
Energy
Companies that create and/or supply energy Follow oil prices closely, and are good measures of global demand for energy (thus are good indicators of the overall economy) Examples: Noble Energy, Exxon Mobil, Conoco
Materials
Companies that discover, develop, and process raw materials. Covers the mining and refining process, as well as chemicals. These companies are good indicators of global growth because demand for raw materials reflects spending on construction. Examples: DuPont, Rio Tinto, BHP Billiton
Announcements
SimComp is next Thursday in the EDS lab instead of the SCG Workshop- MUCH MORE FUN! If you didnt like todays workshop, then next times will probably be more investing and less trading/theory/markets. If you did like todays workshop, then go to SIMCOMP! PAY DUES IF YOU HAVENT ALREADY! Good luck to anyone competing in UIAs Stock Pitch Competition!