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General Body Meeting 02-29-12

General Body Meeting 02-29-12. Welcome. News Updates. General News. Warren Buffett’s Investment Letter. Succession An unknown successor (and two backups) has been chosen Mistakes Berkshire Hathaway has underperformed the market over the last couple years

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General Body Meeting 02-29-12

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  1. General Body Meeting 02-29-12

  2. Welcome

  3. News Updates

  4. General News

  5. Warren Buffett’s Investment Letter • Succession • An unknown successor (and two backups) has been chosen • Mistakes • Berkshire Hathaway has underperformed the market over the last couple years • Energy Future Holdings – a Texas natural gas utility • Gold • Avoid it • Focus on productive assets

  6. Warren Buffett’s Investment Letter • Stock buybacks • Justification for why he wants IBM stocks to “languish” • Inflation risks • Bonds are risky • Buffett Rule

  7. Healthcare

  8. Retirement of Bill Weldon • CEO of Johnson & Johnson • Replaced by Alex Gorksy • Previously VP and Head of J&J medical devices and diagnostic business • J&J had issued over 30 recalls since late 2009 • Regulators now oversee control of operations at three plants linked to problems

  9. Retirement of Bill Weldon • Recalls included Adult Tylenol, Benadryl, Zyrtec, and Motrin • Also: HIV medicine Prezista and Epilepsy pill Topamax • Weldon will continue to serve as Chairman

  10. Media/Telecom News

  11. Sprint Board vetoed $8 billion merger with MetroPCS • 9.3 million more customers for Sprint • Airwaves for faster Wireless service Share Performance • 42% decrease in share price in past 12 months • Sprint CEO Dan Hesse already approved Merger

  12. Two Minute Drill Guest Lecturer: Zachary Peskin Following the News Topic:

  13. Following the News • Television • Radio • Traditional News • Financial Blogs • Twitter • Books • Bloomberg Terminal

  14. Traditional News • WSJ • Financial Times • Reuters • Barrons • New York Times • AFP • AP

  15. Financial Blogs • The Big Picture - http://www.ritholtz.com/blog/ • Calculated Risk - http://www.calculatedriskblog.com/ • MACROFUGE - http://macrofugue.com/ • VariantPerception - http://blog.variantperception.com/ • DealBook - http://dealbook.nytimes.com/ • DealBreaker - http://dealbreaker.com/

  16. Twitter • @FT • @BloombergFX • @BloombergRates • @TheEconomist • @WSJ • @B_Eichengreen • @gregmankiwblog • @dealbook • @WSJDealJournal • @BloombergNews • @PIMCO • @nytimeseconomix • @BloombergNow • @BW • @tomkeene • @MarketWatch • @ZipperTheory • @ConvertBond • @JamesGRickards

  17. Sears Holdings

  18. Results • Roughly 40% loss in two weeks

  19. Sears Holdings What in the world is going on?

  20. Sears Holdings • Earnings Recap • Expectations: $0.67 • Earnings: $0.54 • 19% Earnings Miss “Our poor financial results in 2011, culminating in a very poor fourth quarter, underscore the need to accelerate the transformation of Sears Holdings…own 95% of Sears Canada, which also experienced very poor results, and included a change in management in mid-year.”

  21. Sears Holdings Spinoff • CIT Group • Primary lender of Sears that extends credit to buy inventory, operate stores • Cut funding from Sears for line of credit • Liquidity Concerns • These liquidity concerns led to rapid decrease in stock price earlier in year

  22. Sears Holdings Spinoff • Hardware and Sears Outlet stores • Specializes in Sears’ core strengths of Appliances and Hardware • Craftsmen tool line • Kenmore appliance lines

  23. Sears Holdings Liquidation • Raised $270 million from sale of 11 stores • Averages $24.5 million per store • Owns 3500 stores • Suggests a liquidation value above Book Value • Somewhere roughly around $70

  24. Sears Holdings Liquidation • Accounted for $250 million of $270 million sale

  25. Sears Holdings • Theories • Is Sears going to be taken over by Private Equity • Premium over book value prices shares around $70-$80 range • Short Squeeze? • A short squeeze shouldn’t be this large… • Volume indicates that Quant programs may be hunting for stop limits and pushing up prices

  26. Sears Holdings • What to do? • Monitoring each day • Hold tight and stick true to thesis • If being taken over, cut losses and run

  27. Semester Holdings Update

  28. 13,000

  29. Portfolio Review • Short term rally provides us an opportunity to analyze our holdings • Take advantage and lock in profits • Restructure portfolio and free up assets for other opportunities

  30. Hewlett Packard [HPQ] -44.4% Current Profit & Loss: Recommendation: HOLD

  31. Cisco Systems [CSCO] -17.3% Current Profit & Loss: Recommendation: HOLD

  32. Johnson & Johnson [JNJ] 2.5% Current Profit & Loss: Recommendation: HOLD

  33. Las Vegas Sands [LVS] 20.3% Current Profit & Loss: Recommendation: HOLD

  34. Otter Tail [OTTR] -5.3% Current Profit & Loss: Recommendation: HOLD

  35. Brinks Company [BCO] 12.3% Current Profit & Loss: Recommendation: HOLD

  36. Archer Daniels Midland [ADM] -11.9% Current Profit & Loss: Recommendation: HOLD

  37. Proctor & Gamble [PG] 10.1% Current Profit & Loss: Recommendation: HOLD

  38. Philip Morris International [PM] 104.2% Current Profit & Loss: Recommendation: SELL

  39. Philip Morris International [PM] • Strong run in share prices over the last few weeks as markets have rallied

  40. Philip Morris International [PM] • Strong Overbought Signals • Williams %R – All time high • Relative Strength – All time high

  41. Philip Morris International [PM] Original Thesis(Purchased November 2009) • Hedge against recession • Low beta • International exposure • Take advantage of international cigarette consumption trends

  42. Philip Morris International [PM]

  43. Philip Morris International [PM] Comparable Analysis illustrates a fair valuation on a fundamental basis • P/E is in line with industry • PEG is a bit high at 1.94 Steady cash flows have led to a steady rise as: • Strong International Growth • Various expansions into further geographic areas

  44. Philip Morris International [PM] • Despite this potential to growth… • Tobacco Industry has many externalities • Increases in Government Taxes • Competition from domestic manufacturers • China National Tobacco Corp • “boasts a virtual monopoly in the People's Republic of China, which accounts for roughly 30% of the world’s total consumption of cigarettes” • Potential for tighter restrictions on Philip Morris in China

  45. Philip Morris International [PM] Overview • Technically is way overbought • RSI, Williams, and MACD at all time highs • Fundamentally is fairly valued • Fair evaluation leaves room to rise, but doesn’t speak to any undervaluation • Externalities pose risks in long run • Foreign regulations • Increased competition

  46. Philip Morris International Sell: $2,505.60 Portfolio Allocation: Roughly 5% of portfolio Profit: 104.2%

  47. Visa [V] 49.7% Current Profit & Loss: Recommendation: HOLD

  48. Walt Disney Company [DIS] -1.9% Current Profit & Loss: Recommendation: HOLD

  49. Telefonica [TEF] -37.8% Current Profit & Loss: Recommendation: HOLD

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