general body meeting 9/29/2010. mutual investment club of cornell agenda investment ideas ...

General Body Meeting9/29/2010

Mutual Investment Club of Cornell

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Agenda

Investment ideas Industrials and basic materials Energy Media Healthcare Macro

Brinks Update


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Announcements

Another reminder to talk to Miles Moen if you’d like to write for our newsletter

If you have not approached Melody to purchase shares by next Wednesday, you will no longer be taking part in managing the fund


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Current conviction list

Real Estate American Campus Communities Digital Realty Trust

Consumer Archer Daniels Midland Company Agrium Inc.

Financials Alliance Bernstein White River Capital


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Industrials and Basic Materials


Sell GLD

Fund already made gain Weak fundamental justification for

recent increase Exhibiting bubble like behavior


Bucyrus International (BUCY)Businesses Manufactures mining equipment for

extraction of coal, copper, oil sands, iron ore, and other earthly minerals

Production facilities in Australia, China, Germany, Poland and the United States, and service and sales centers in Australia, Brazil, Canada, Chile, China, England, India, Mexico, Peru, Russia, South Africa and the United States

Trading at $71.37 (as of close yesterday) 52 week: $74.16-$31.78


Bucyrus International (BUCY)Strengths Projected kick up in equipment spending in the

next 5-10yrs, both to meet the rising demand for commodities and to replace outdated machines

BUCY and competitor Joy own 80% of mining equipment industry

Highly diversified both in product lines and geographically 70% sales outside US

Expanded aftermarket sales - service and support of existing equipment to protect revenue stream from cyclicality 52% of sales revenue from original equipment,

48% from aftermarket services and goods


Bucyrus International (BUCY)Weaknesses Demand for BUCY’s equipment is affected by

prices of commodities (i.e. price of oil and gold) Somewhat coal reliant

66% sales from coal related equipment (13% iron ore, 10% copper)

Competitive pressure from small regional companies Tends to be more for repair services and

replacement units than new equipment Political legislation that reduces the use of coal

usage because of its adverse environmental impacts


Thompson Creek Metals Company Inc. (TC)

Current Price:$11.01 52Week: 8.01-15.20

Vertically integrated Molybdenum company

Molybdenum: Strengthening Agent Corrosion Resistance 60% of US production used as an alloy in

stainless and alloy steels Also used in tools and in super alloys


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Q2 Net Income: $126.5mil vs -$86.5mil Q4 ’09

Gross Margin: 44% vs 28% for industry Operating Margin: 26% vs 1% for

industry Forward P/e: ~7.2


2007 2008 2009 201005

101520253035

Price of Molybdenum


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Significant Growth Opportunies

Court recently approved acquisition of Terrane Metals Corp. Diversifies company into Copper and Gold

(as well as increasing molybdenum production)

90million pounds Copper; 260,000 oz. Gold produced by 2013



China Agritech, Inc. (CAGC)

Chinese Organic Fertilizer producer

Why I love Agritech? Lot of people in China! Declining arable land Highly subsidized by the government Year-over-year revenue growth of

109%, gross profit growth of 90% Carlyle Group has recently invested in

Agritech


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China Agritech, Inc. (CAGC)

Recently Oversold


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Energy


Occidental Petroleum

Oil and Gas Producer Small chemicals

business Onshore Operations

USA (concentrated in Southwest), Middle East, South America

Market Cap: 60.9B Revenue (ttm): 18.18B D/E Ratio 8.19%


OXY - Strengths

Oil Correlation Strong Balance Sheet Long term production

growth (Plans for CapEx expansion)

Very little long term debt

No offshore exposure Acquired Phibro (Citi’s

commodities division) early 2010


OXY - Risks

Oil Correlation Average valuation ratios

P/E 15.2, Industry avg. 15.4 Price/Book 2.0, avg 2.0 Dividend Yield 1.9%, avg

1.8% Regulatory Risk

Cap and Trade, etc. Geopolitical Risk

29% Middle East and North Africa


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Noble Corporation (NE)

Switzerland-based company that provides offshore contract drilling services for the oil and gas industry worldwide Labor contract drilling

services; engineering and consulting services


Noble Corp. Financials

Revenues: $3.64bn FY09 (+5.6% YOY) EPS reached $6.42 (+10.5% YOY)

Record cash flows from operations: $1.93 bn FY09

Lowest capital-to-debt ratio in 5 years: 0.10

EPS: $5.98 (ttm)


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Noble Corp Stock Price (Last 6 Mo.)

$33.67


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Media


Telecom/MediaTelefonica (NYSE:TEF)

Shashank SamalaAndrew Sung

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AMX/Telemax International

Leading provider of wireless telecommunications in Mexico.

Acquired 100% Telemax International for 22% premium this year

Telemax is second largest mobile operator in Brazil, but AMX’s valuation for next year in Brazil is offset by elimination of inter-company transaction revenues and premium paid

Telefonica is better bet for Brazil’s mobile market growth

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Brazil Snapshot – Telecom Sector Brazillian telecom market is 5th largest in the world; Brazil is 10th largest economy GDP: US$ 1.5 Trillion (2008)

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PNAD 2008 RI RII RIII Brazil

Income (R$) 704 927 992 820

Pop. (mm) 104.3

44.8 40.8 190.0

Household (mm)

30.4 14.3 12.9 57.6

Mobile + Fixed - %

30 41 58 39

Just Fixed - % 4 4 8 5

Just Mobile - %

42 45 27 39

No phone - % 24 10 7 17

With comp. - %

24 37 47 32

No comp - % 76 63 53 68


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Telefonica

Provides fixed and mobile telephone services primarily in Spain, rest of Europe, and Latin America Currently focused on Brazil ~ emerging market Entered into Brazillian market in 1998

Battle for Brazillian Mobile Market Announced agreement for Portugal Telecom to sell

its stake in Vivo to Telefonica for EUR7.5 billion (7/28/10), making it the largest mobile operator in Brazil

Market Cap: 112.27B Last Trade: 74.50

Div & Yield: 3.94 (5.50 %) P/E (ttm): 10.47


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Why Telefonica

Revenues market-share (12/09): Oi: 32%, Telefonica + Vivo: 32%, Claro + Net +

Embratel: 22%, TIM: 12% National Market Share - Mobile

(Subscribers): Telefonica 30%, Telmex Internatioal/AMX 25%, TIM

24%, Oi 21%

Whereas fixed telecom revenues have grown at an average of 7.6% annually, mobile revenues have reached a growth rate of 17.0% per year between 2002 and 2009.


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Why Telefonica

Positives: Potential to increase current market share in Brazil Mobile internet boom (only 8% of mobile

users currently have the capability and internet penetration rate only 34%)

Concerns: Exposure to Europe markets More competition in broadband Fixed lines matured


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Baidu.com, Inc. ADR (NASDAQ: BIDU)

Melody Xie, Alex Friedman


Baidu.com, Inc. (ADR) NASDAQ -BIDU Company Overview

Chinese-language search platform web search, MP3 search, e-commerce, etc.

Online Marketing Services Uses Phoenix Nest (similar to Google Ad

Words) Revenue Model

Revenue = traffic x coverage x click-through rate x CPC

Traffic is number of search queries Coverage is % of result pages with ads/ # of ads

per page Click-through rate depends on user behavior &

Baidu Algorithm CPC is the cost per click

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Baidu.com, Inc. (ADR) NASDAQ -BIDU

Stock Overview Price: 102.00 - Market Cap: 35.5B - EPS:

0.96, Volume: 22,145,938 – 52wk Range: 35.50 to107.19

Stock Trends ( ) Stock split in May 2010 ($714.17 to

$71.42) Google Controversy with China Internet users increase in China

Expected to double in size over the next 5 years

Sales Outlook

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Baidu.com, Inc. (ADR) NASDAQ -BIDU

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Baidu.com, Inc. (ADR) NASDAQ -BIDU Risks

High P/E Ratio = 106.51…Overvalued? Beijing lessening restrictions to foreign

companies Possible increase in competition

Volatility of Chinese stocks


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Healthcare


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Healthcare: Industry Overview ObamaCare has designated much

money in healthcare IT reform 2008: hospitals had avg operating

margin: 4.3% and 34% were operating in the red

Inefficiencies across the payer/hospital spectrum

Healthcare spend is projected to grow from 16.6% of GDP to 4.4 trillion by 2018

About 10% of US population expected to join government plan for insurance > increased supply utilization


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Portfolio Idea: MedAssets, Inc (MDAS) Healthcare IT company focused on

improving efficiencies in hospitals only Two businesses: Revenue Cycle

Management, Supply Management Third largest GPO Biggest range of products in the

business for hospitals


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Recent Facts

Lower end of 52 week range Of comps, AH and EM, best P/E Just acquired The Broadlane Group for

its supply chain management business New projects, including Stamford health

as well cashing in revenue stream from current big projects- Texas Purchasing Coalition

Both segments up 13% in revenue YoY


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Portfolio Idea: Celgene (CELG) Biotech company focused on cancer

drugs Strong performance with marketed

drugs (Revlimid for myeloma up 15% QoQ)

Recently acquired Abraxis BioScience (ABII)

Several catalysts over the next year, with the biggest driver being Abraxane

2Q revenue beat consensus by 4%, up YoY 35.8%


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Macro


Macro-economy

No big movements in markets No double dip or V-shaped recovery

Due to sustained high unemployment Take time to de-leverage (households, firms,

nations) Credit markets aren’t at pre-crash levels

Play this in 2 ways


Macro-economy

Buy High Dividend Stocks Get the yield from dividend Also, tend to be safer (offer some

downside protection) Examples:

Eli Lily (pharmaceuticals) Pengrowth Energy Trust (Canadian oil and

natural gas) Proctor and Gamble, J & J (Consumers)


Macro-economy

Long defensive stocks and short cyclical stocks Margins aren’t that big and get killed on

downswing Earn solid gains with steady or decreasing

market Lose potential big gains on market upswings

Example: Long: Pepsi, J & J, Wal-Mart Short: FedEx, Alcoa, Ford, Morgan Stanley


Macro-economy

FedEx


Macro-economy

Ford


Macro-economy

Morgan Stanley


Macro-economy

Long the RMB US accused the Chinese government of

artificially devaluing Keeps Chinese exports cheap relative to

USD Created massive trade deficit between US

and China

China will capitulate and gradually allow RMB to appreciate Potential trade war?


Macro-economy

Artificial devaluing


Macro-economy

Did we miss it? Some appreciation but general response

to weaker USD and not due to specific pressure


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Brinks and Co.


Brinks Update

Original Thesis: A series of unfortunate events, caused in part by Brink’s sale of its home security division, created an undervalued company.

Long term opportunity Sale of home security division in 2008

Changes margins, revenue, operating income

Also, economic turmoil has contributed to mispricing

What happened? In short the slumping economy continued

to hurt Brinks


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Quick Overview

Armored Car (Secure Transportation) Cash in transit services ATM servicing

Global Services Long-range transportation of valuables

Cash Logistics Airport security Supply chain management Secure data solutions


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What went wrong?

Continued political and monetary instability in Venezuela

Slumping worldwide economy 80% of operating income is international

Time horizon was 12 – 18 months


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Brainteaser

‘U2’ has a concert that starts in 17 minutes and they must all cross a bridge to get there. All four men begin on the same side of the bridge. You must help them across to the other side. It is night. There is one flashlight. A maximum of two people can cross at one time. Any party who crosses, either 1 or 2 people, must have the flashlight with them. The flashlight must be walked back and forth, it cannot be thrown, etc. Each band member walks at a different speed. A pair must walk together at the rate of the slower man`s pace: Bono - 1 minute to cross Edge - 2 minutes to cross Adam - 5 minutes to cross Larry - 10 minutes to cross For example: If Bono and Larry walk across first, 10 minutes have elapsed when they get to the other side of the bridge. If Larry then returns with the flashlight, a total of 20 minutes have passed and you have failed the mission. Your goal is to get all the men across in 17 mins or less.


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Answer

Bono(1min) and Edge(2min) walk across first bringing the total to 2 minutes. Then Bono(1) walks the flashlight back, totaling 3 minutes. Adam(5)and Larry(10) walk across, totaling 13 minutes. Edge(2) walks the light back, totaling 15 minutes. Edge(2) and Bono(1) walk across, totaling the answer, 17 minutes.


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Thanks for coming by

general body meeting 9/29/2010. mutual investment club of cornell agenda investment ideas ...

Documents

coal related equipment

bucys equipment

original equipment

sales revenue

sales centers

support of existing

extraction of coal

mil vs