Friday March 28th, 2014

Lafayette College Investment ClubLafayette College Investment ClubLafayette College Investment ClubLafayette College Investment Club

Announcements• 1) The BAT Test

– April 5th, 2014 10:00 AM in Engineering Building Acopian - 223B– Register at www.takethebat.com

• 2) Mentor Program – Wednesday April, 2nd in TBD classroom– All are welcome announcements to follow via Email with instructions– Pizza and Soda provided

• 3) Trivia – I will ask a trivia question at the end of the meeting– Winner takes home - Investment Club Fleece

• 4) Board Positions Opened– We are graduating 5 spots– We had a mandatory meeting already but anyone is welcomed to run

• 5) Board Meetings still open on Mondays at 12:15 pm in Simon Lobby– We encourage all ideas and backgrounds

Meeting Agenda

• 1) Market Update – Ryan McCormick

• 2) Portfolio Update – Tim Simon

• 3) Educational Piece – Craig Scheuerle

• 4) CLOROX – Sell pitch by Angel Stoychev

3/28/2014

By: Ryan McCormick

Market Update

Fannie Mae / Freddie Mac

• Proposal comes 6 years after Gov. rescue

• New mortgage securities / lenders take initial losses

• Private entities can purchase Gov. guarantees

• Attempts to prevent careless lending

Employment Data

• National quit rate fell to 1.7% in January

• 1st drop in quits rate since March 2013

• Indicates economy slowed over the winter

• Quits rate is more important considering questionable unemployment data

No Quick Increase in Hiring

• Companies continue to increase spending

• Encouraged by an end to gridlock in D.C.

• CEOs do not project an increase in hiring

• Turmoil in Russia / Ukraine hurt hiring

• Global companies concerned with sales

Federal Reserve

• Policy makers debate how to communicate future path of interest rates

• Had promised to raise rates when U=6.5%

• Offer broad assurances, not specific number

• Want to consider wider range of indicators

• Could hurt Fed’s future credibility

Yellen Comments

• Yellen announced rates could rise 6 months after QE ends

• Rattled markets causing stock prices to fall

• Shows how sensitive markets are to the Fed

• Yellen has difficult challenge with guidance

Portfolio Update Both Prior and Post Spring Break

By: Tim Simon

Caterpillar INC: CAT

• 4.02%

• Up 15.63% In past 3 months

• Sales of construction equipment rose despite weather conditions

General Electric Co: GE

• 4.72%

• Down 1.1% in past 3 months

• $3 billions in bond sales

• Signed one year agreement with NYPA

UnitedHealth Group Inc: UNH

• 3.96%

• Up 6.72% last 3 months

• In Feb online bill payment grows to more than 50,000

Biggest Gainer – AKAM 24%

Biggest Loser – Baidu down 15%

Overall Portfolio

• Month over Month – We are roughly down -1.05% give or take a few basis points. The benchmark is down roughly -5.25%.

• YTD – We are up 30 basis points where the market is up 78 basis points.

• Our biggest concern is the 5% allocation into GILD which is down roughly 13% this month.

The Sell Side

By: Craig Scheuerle

I want to work for an investment bank…..

Main Components

Investment Banking

Sales and Trading

Private Wealth Management

• Individuals• Pension Funds• Insurance Companies• Asset Managers• Corporate Treasuries• Sovereign Wealth

Funds

• Corporations• Governments• Municipalities

Providers of CapitalInvestment

BankingInvestment

Banking

Investment Banks serve as intermediaries between providers and users of capital

Chinese Wall

Sales & Trading

Research

Users of capital

Public sidePrivate side

Strategic advisorySecurities underwriting

IB Overview

A B

AdvisoryCapital Markets

• Equity capital-raisingo Initial public offerings (IPOs)o Follow-on offeringso Equity-linked (convertible)

• Debt capital-raisingo High-grade or investment gradeo High-yieldo Syndicated loanso Tax-exempt

Overview of Investment Banking

• Mergers & Acquisitionso Buysideo Sellsideo Spin-offs / Splitoffs / Carve-outso Hostile defenseo Hostile takeovers / proxy fightso Joint Ventures

• Restructuring• Ratings

Execution

• Financial Analysis• Communication

o Management, Board of Directorso Internal Committees

• Identify Potential Investors• Negotiation / Structuring Transactions• Due Diligence• Documentation

Origination

• Client Relationship Management o Ongoing dialogue on financial

markets, industry developments, new products

o Long-term relationship as advisor to Senior Management and Boards

• Idea Generation and Problem Solvingo Strategic Alternativeso Capital Raisingo Optimizing Capital Structureo Risk Management, Dividend Policy

• Assessment Of Opportunities

What Does An Investment Banker Do?

Investment Banking Groups

Product

• M&A• Corporate Finance

Industry Coverage

• Consumer & Retail

• Healthcare• Technology• Media & Telecom• Industrials• Natural Resources• Real Estate

Capital Markets

• Equity Capital Markets

• Debt Capital Markets

• Tax-exempt• Leveraged

Finance• Securitized

Products

“Markets” “Technical”

Investment Banking Competitive Landscape

Bulge bracket

Boutique

Middle Market

Low HighCapabilities

Sell Clorox

By: Angel Stoychev

CLX Overview

• Produces laundry additives, bleach, stain fighters, color boosters, home-care products

• P/E = 20

• Beta = .4

• Dividend yield = 3.6%

• Last price = 87$

• Currently 2.5% of the portfolio

Over leverage

• Total Debt = 2.51B

• Total Cash = 341M

• Total Debt/Equity = 1,610

• Current Ratio = 1.27

• Interest Coverage Ratio = Interest Expense/EBIT= 20%

Balance Sheet

Assets Liabilities Stockholder Equity4,311,000 4,165,000 146,000

Net Tangible Assets = (1,586,000)

Bad Cash Flow Management

• Dividends Paid = 335M

• Cash Flow from Operating Activities = 775M

• Net Cash Flow Change = 32M

Stagnation

• Revenue increased at 1.2% annually

• EPS flat or declining in recent quarters

• 12-mo stock performance flat

Management, Insider transactions

• Economic profit = Earnings from continuing ops

+ Interest Expense

- Income tax expense

- Capital charge

• Insider closing out positions

– 8,000 shares sold in the last 24 weeks (2 weeks worth of daily volume)

Sell-side coverage

• UBS (Sell), Goldman Sachs (Sell), Credit Suisse (Underperform)…

Summary

• Over leverage + Stagnation = Lagger

• Replace with a company that will benefit from improvement in the economy