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In this presentation, we recommend an increase in the SIM portfolio's financial sector weight by 147 basis points to align with the S&P 500. Focus on opportunities within property and casualty insurance, asset management, and investment banking while exercising caution with banks and real estate. Notable stock recommendations include selling Mastercard (MA) and Biomed Realty Trust (BMR), while buying Goldman Sachs Group (GS) and Reinsurance Group of America (RGA) to capitalize on growth potential.
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Financials Sector Stock Presentation -John Reik- -Jeff Liu-
Sector Recommendations • Increase SIM portfolio’s financial sector weight by 147 basis points to bring in line with S&P 500 • Look for opportunities in P&C insurance companies, asset managers, brokers, investment bankers, and exchanges • Exercise caution with banks, real estate, and credit card companies
Stock Recommendations • Sell Mastercard (MA) • [409 basis points] • Sell Biomed Realty Trust (BMR) • [377 basis points] • Buy Goldman Sachs Group (GS) • [433 basis points] • Buy Reinsurance Group of America (RGA) • [500 basis points]
Current SIM Holdings vs. Proposed SIM Holdings Current: Proposed: 20.71% 22.18%
Mastercard (MA) • Business Analysis • Risks: • Increased competition • Visa & Discover IPOs • Legal & Regulatory Issues ($1b or $7/share) • Slowing revenue, earnings, and operating margin growth rates • Opportunities: • Expansion in overseas markets • New initiatives (e.g. PayPass) • Increased use of non-cash transactions
Mastercard (MA) • Financial Analysis: • MA’s effectiveness ratios are below average • MA seems to be valued too high on a P/E, P/S, and PEG basis
Mastercard (MA) • Valuation: • Current Stock Price: $104.06 • DCF Target Price: $101.07 • Potential downside: 2.9% • Absolute: • Near all time highs in P/E and P/B • Relative to S&P 500: • expensive • Relative to AXP: • Expensive (based on P/E)
Goldman Sachs (GS) • Business Analysis • Investment banking segment: Booming market for equity IPOs, M&As, share buybacks, etc. • High investor confidence equates to high inflows for asset management and brokerage services • Risks: • Decrease in business/consumer confidence • Less investment banking/trading activity • Increasing interest rates or widening of credit spreads
Goldman Sachs (GS) • Financial Analysis • GS seems to be outperforming its competitors • However, the stock is still cheap on a P/E, PEG, and P/S basis
Goldman Sachs (GS) • Valuation: • Current Price: $214.00 • DCF Target Price: $269.12 • 25.8% potential upside • Absolute: • P/B ratio near 5-year HI • P/E ratio about average • Relative to S&P: • cheap on a P/E basis • In-line on a P/B basis • Relative to Industry: • Cheap on a P/E basis • Expensive on P/B basis
Biomed Realty Trust (BMR) • Business Analysis • Major revenue drivers: • The mortgage rate, affects both company’s financial cost and customer demand. • Over all economy--GDP (on a lag basis); employment numbers, and the well-being of biotechnology and pharmaceutical companies. • The prices of utility, taxes and insurance are crucial to the companies’ operating expenses. • Potential risks: • The rate hiked by FED to 5.25% over the past year will take full effect on the real estate market in 2007. • The severe correction of the current over-valued real estate industry as a whole • Tenants in the life science industry face high levels of regulation, expense and uncertainty • specific improvements required for our life science tenants • The geographic concentration of our properties in Boston and California • limited operating history as a REIT and as a public company
Biomed Realty Trust (BMR) • Financial Analysis:
Biomed Realty Trust (BMR) • Valuation: • Current Price: $29.70 • DCF Target Price: $31.08 • Potential upside 4.6% • Absolute: • About average in P/E and P/B • Relative to S&P: • About average in P/E and P/B • Relative to Sector: • A little below average in P/E and P/B
Reinsurance Group of America (RGA) • Business Analysis • Major revenue drivers: • The increasing life and retirement product need for baby boomers. • The Company has arms-length direct policies and reinsurance agreements with MetLife and certain of its subsidiaries. Consolidation and Reorganization: the coinsurance agreement with Allianz Life provided $278.0 billion in reinsurance in force • Growing market potential in Asia. (Percentage of company revenue 8.1% (02),9.8% (03),11.9% (04). 13% (05) • Potential risks: • Adverse changes in mortality, morbidity or claims experience • Inflation & Interest Rate Risk • General economic conditions affecting the demand for insurance and reinsurance • Exchange rates fluctuations • Changes in laws, regulations, and accounting standards applicable • Risks inherent in risk management and investment strategy
Reinsurance Group of America (RGA) • Financial Analysis:
Reinsurance Group of America (RGA) • Valuation • Current Price: $58.87 • DCF Target Price: $77.82 • Potential upside 32.2% • Absolute: • About average in P/E and P/B • Relative to S&P: • A little above average in P/E and P/B • Relative to Industry: • Below average in P/E and P/B
Review of Recommendations • Increase SIM portfolio’s exposure to financial sector by 147 basis points • Sell Mastercard (MA) [409bps] and Biomed Realty Trust (BMR) [377bps] • Buy Goldman Sachs (GS) [433bps] and Reinsurance Group of America (RGA) [500bps]
