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Friday March 7th, 2014

Friday March 7th, 2014. Lafayette College Investment Club. Meeting Agenda. 1) Announcements BAT (Bloomberg) Rescheduled Market Madness SMC – Interviews and Night (Info session) 2) Market Update 3) Portfolio Overview 4) SELL IBM (PARTIAL SHORT TERM GAIN)

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Friday March 7th, 2014

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  1. Friday March 7th, 2014 Lafayette College Investment Club

  2. Meeting Agenda • 1) Announcements • BAT (Bloomberg) Rescheduled • Market Madness • SMC – Interviews and Night (Info session) • 2) Market Update • 3) Portfolio Overview • 4) SELL IBM (PARTIAL SHORT TERM GAIN) • 5) SELL EXPE (PARTIAL SHORT TERM GAIN) • 6) BUY ATVI (Activision Blizzard)

  3. Market Update Othman Guennoun, Connor Steigerwald, Emily Evanko Friday, March 7th, 2014

  4. Crisis in UKRAINE • Russia sent troops into Ukraine to ensure their loyalty and the control over Ukraine's resources • -Russia is the largest energy exporter • After troops were sent in: • -Oil and natural gas gas prices rose • -Price of gold spiked as tensions increased • Ukraine is 6th largest wheat exporter, 4th largest barley exporter • -Wheat barley and corn--> price of grain spiked • -Ukraine is the largest producer of Sunflower oil • U.S. dollar increased in value because it was looked at like gold

  5. Financial Markets • Financial markets rattled, triggered a global stock selloff • -Three major U.S. stock indexes had biggest one-day declines in a month • Ukraine allies threatened to retaliate against Russia with economic sanctions • Russia felt the most market pain • Yields on Ukraine bonds went up currency fell • Diplomatic push by Kerry and UK • Russia withdrew from Ukraine and stocks reached all time highs

  6. CHEVRON (CVX) • Chevron 1.9% of the portfolio, 80 shares valued at $9188 following the close on Thursday. • Chevron won a counter-suit blaming an Ecuadorian environmental group for obtaining evidence through racketeering. • The environment group - originally won $19 billion dollars from Chevron for human rights and environmental violations, which Chevron had refused to pay. • The company had been claiming the environmental group had obtained evidence illegally. • Because of the victory in the counter-suit, Chevron has restored confidence to investors, and analysts are predicting more steady growth.

  7. ExxonMobil • Spending cuts and and decrease in performance makes investors nervous • Return on Capital Employed (ROCE) for 2013 : 17%. Usually great for other companies but not for Exxon • Despite high prices – Exxon can’t have ROCE of 20% which what it usually has • On Wednesday, CEO announces spending cuts – 10% decrease in capital expenditures budget. • Stock goes down 3% after announcement

  8. First Chinese Bond Default since the 90s • Bond Default: failure to pay interest or principal when due • Shanghai Chaori Solar Energy Science and Technology Company announced that it can’t pay interests on its Chaori bond. • Can only pay 4million yuan out of 89.8 million yuan. • Scared investors who invest in China. • Might lead to contagion? • Some say it’s a good thing for the economy: “A normal economy needs defaults to better price bonds and other debt products”

  9. Unemployment Rate for February PREDICTIONS ON FRIDAY’s Reports • Economists predict 152,000 increase in nonfarm payrolls compared to 113,000 in January • Unemployment rate expected to go down by one tenth to 6.5% • If rate goes down, stock should rise

  10. Stocks Close Mostly UP • S&P 500 rose 3.22 point (0.2%) Fourth all time high in six sessions • Dow Jones rose 61.71 points (0.4%) • Nasdaq Composite Index goes down by 5.85 points (0.1%) Because of weakness in biotechnology stocks

  11. Portfolio Updates By: Peter Oberender and Angel Stoychev

  12. Portfolio overview • Pfeizer – FDA approval on Lipitor sold over the counter • Clorox – UBS downgrade to sell; no organic growth, lower margins anticipated • Baidu – Quarter 4 earnings disappoint • Ebay – Proxy fights continue • Nuverra Environmental – Earnings

  13. Gilead Science INC: GILD 4.86% Up 9.2% last 3 months Positive fourth quarter earnings Sold 3.7 Billion in corporate bonds

  14. Caterpillar INC: CAT • 4.02% • Up 15.63% In past 3 months • Sales of construction equipment rose despite weather conditions

  15. General Electric Co: GE • 4.72% • Down 1.1% in past 3 months • $3 billions in bond sales • Signed one year agreement with NYPA

  16. UnitedHealth Group Inc: UNH • 3.96% • Up 6.72% last 3 months • In Feb online bill payment grows to more than 50,000

  17. IBM Short-term Gains 50 Shares

  18. Thesis • IBM currently 4.75% of portfolio • Already have substantial positions in tech • Free up cash – continued diversification

  19. Why IBM? • Hardware business is eroding • Composed of servers, chips, storage gear • Cannot keep pace with Cloud computing • Lowest quarterly revenue in 4 years

  20. Inorganic Growth • Unable to grow business internally • Sold computer server piece to Lenovo • J.P. Morgan: “IBM model not nimble enough to jumpstart revenue and growth.” • Consulting services largest part of business

  21. Conclusion • IBM still has value in services and tech • Our position is too large in portfolio • Undergoing transformation process • Short-term gains allows for diversification

  22. EXPE Sell half position (short term gains)

  23. Expedia Background • Expedia is the number 2 brand player in the online travel industry. • Hotels.com, Trivago (Europe), E-Long (China) are a few of their online search engines. • Currently a majority market share owner domestically roughly 14.23% of the market vs. PCLN • Currently a minority market share owner internationally • With a goal of growing its user base, Expedia aims to continue investing in developing its technology and content to improve its product offerings and expand its presence across geographical segments. • While it remains positive about its long-term growth potential, it is wary of increasing competition in international as well as domestic markets.

  24. Thesis for Sept Buy • If you recall back in September I bought Expedia for a back half of the year story. • Q3 and Q4 because business is easier in that period for Expedia drives higher revenue and sales. • It traded at a steep discount for no fundamental reason besides management misguidance. • Management set achievable targets that they hit and the stock reverted back to its mean June 2013 price of 75 a share. • Essentially it was a mean reversion trade

  25. What has changed? • Management has set achievable targets going forward and did apparently learn there lesson. • However, in the short term owning this stock could be troublesome. • 1) Much of Expedias growth reported in Q3 and Q4 was due to Trivago and E-long • 2) There is still incremental technology-related spend being directed toward the Expedia Traveler Preference Program (ETP) as new hotels come onto the platform. • 3) Is an improved European macro outlook driving higher growth in travel bookings? • We have a large position, we are looking to trim to take some gains and allocate elsewhere. • Still long thesis intact as growth across the board is solid.

  26. Activision Blizzard (ATVI) Buy 2000 shares at Market Price 4% of Portfolio By: George Rakic and Benjamin Tschan

  27. Company Overview • Activision Blizzard Inc. (July 9th, 2008) is a world wide mobile, online and video-game publisher • Sector: Technology • Industry: Software

  28. Segmentation(Geo) • US: 53% of revenues • Europe: 40% of revenues • Asia Pacific: 7% of revenues

  29. Segmentation(Business) • Activision Publishing Inc. (67%) • Call of Duty, Skylander • Blizzard Entertainment Inc. (26%) • Diablo, Starcraft, WoW • Activision Blizzard Distribution (7%) • Sales distribution in Europe, manufacturers of interactive entertainment hardware

  30. Revenue Stream and Growth • 3 main Revenue Channels: • Software Purchases • Monthly Subscriptions • “In-Game” Purchases • Revenue: • $4.755B (2011) • $4.856B (2012) • $4.583B (2013)

  31. This Year’s Revenue • Revenues fell by 5.6% due to a loss in WoW subscriptions • However, expected to rise due to the new expansions coming up later this year

  32. 10 Year Preformance

  33. Competitors

  34. Why a Good Investment? • Strong value inside a company • Really cheap (the street not happy with revenues) • Pays dividends • Coming up with new game Heroes of the Storm • New Expansions for released games

  35. Catalysts • Candy Crush (Kings) IPO • Report another dip in revenues • Game coming out will not be a success

  36. Buy 2000 shares at Market Price4% of Portfolio

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