General Body Meeting 9/29/2010
Jan 15, 2016
General Body Meeting9/29/2010
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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
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Sell GLD
Fund already made gain Weak fundamental justification for
recent increase Exhibiting bubble like behavior
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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
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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next 5-10yrs, both to meet the rising demand for commodities and to replace outdated machines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
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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
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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
Thompson Creek Metals Company Inc. (TC)
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
Thompson Creek Metals Company Inc. (TC)
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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
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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%
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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
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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
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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.)
$33.67
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Media
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Telecom/MediaTelefonica (NYSE:TEF)
Shashank SamalaAndrew Sung
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AMX/Telemax International
Leading provider of wireless telecommunications in Mexico.
Acquired 100% Telemax International for 22% premium this year
Telemax is second largest mobile operator in Brazil, but AMX’s valuation for next year in Brazil is offset by elimination of inter-company transaction revenues and premium paid
Telefonica is better bet for Brazil’s mobile market growth
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Brazil Snapshot – Telecom Sector Brazillian telecom market is 5th largest in the world; Brazil is 10th largest economy GDP: US$ 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
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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
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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
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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)
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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
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Macro-economy
FedEx
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Macro-economy
Ford
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Macro-economy
Morgan Stanley
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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?
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Macro-economy
Artificial devaluing
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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.
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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