After many months, today SMIF heard its last pitch of the year! Zach Alerhand ended on a strong note, pitching Iron Mountain to the class. Iron Mountain is a global business dedicated to storing, protecting, and managing information and assets. The company, although not a traditional Real Estate company, is in the REIT sector. Being a REIT, Iron Mountain is required to pay 90% of its taxable income annually in the form of shareholder dividends. Zach made a point to note that the company is remarkably stable. He believes that though there may be little price appreciation when holding Iron Mountain, there will be a stable and ever-increasing dividend. He believes the company will find growth opportunities in the coming years as it expands its operations overseas, namely in Europe and Australia. All in all, Iron Mountain is a stable company with trusted clients that will provide dividend income for years to come. Zach proposed to purchase 400 shares of Iron Mountain – the motion passed 28:2.
On Tuesday, SMIF heard from Gleb about adding low-cost brokerage firm Charles Schwab to the financial sector holdings. Gleb believes that in a world of ever-compressed fees, Charles Schwab is best posed to succeed. Unlike competitors Ameritrade and E-Trade, Schwab is diversified away from pure trading. In fact, trading commission only accounts for 11% of Schwab’s revenue. The bulk of the firm’s revenue is derived from Asset Management fees and Net Interest. The firm has fared remarkably well, with a Net Income CAGR of 20.8%. This is in stark contrast to the stagnant growth of its competitors. Gleb proposed to buy 500 shares of Charles Schwab. The motion passed unanimously.
On April 5th, Adam Mszanski pitched Lockheed Martin, the number one defense contractor in the U.S, to the SMIF Class. The company has four main segments: Aeronautics, Missles and Fire Control, Rotary & Missile Systems, and Space Systems. Adam believed that Lockheed has room for much growth in the future due to many political catalysts during the Trump Presidency. For example, Adam foresees tax reductions, increases in defense spending, deregulation and increased global conflicts in the future. Therefore, Adam explained that when other countries increase their spending, Trump will react by further increasing defense spending. Moreover, Lockheed Martin has taken on more debt at lower rates than their competitors, has lower operational costs, strong revenue streams and increasing dividends.
Therefore, Adam recommended buying 75 shares of LMT at market price. This motion was denied as the class felt that they needed to see more information and competitor comps before coming to a final decision.
On Tuesday, April 4th, Ryan Cutler discussed adding T-Mobile to the telecom sector of the portfolio. Ryan described T-Mobile as a disruptor to the current Mobile space. The company brands themselves as the “un-carrier,” offering many benefits to the consumer over traditional competitors such as Verizon and AT&T. For instance, T-Mobile has no 2 year contracts, unlimited streaming video, and simple “no-hidden fee” billing. The company has seen marked success since it went public in 2013; both revenue and subscribers have seen a CAGR of over 11%. Furthermore, Ryan believes T-Mobile is better positioned in the mobile market due to their recent acquisition of both high frequency and low frequency ends of the wireless spectrum. This has allowed T-Mobile to rapidly shape its coverage network, making it equally as competitive as the other major carriers. All in all, Ryan believes T-Mobiles entry into the mobile space as a new, energetic, and refreshing alternative to cellphone carriers will prove successful. He motioned to buy 100 shares of T-Mobile. The motion passed 29:1.
The SMIF Class had the pleasure of hearing from alumni David Granson on March 29th. David is managing director in the Investment Management Division (IMD) at Goldman Sachs. He joined Goldman Sachs in 1997 as a summer associate in the Equities Division and became a vice president in IMD in 2001 and then was named managing director in 2012. Prior to joining the firm, David was a senior investment analyst at SEI Investments.
David provided the class a great deal of guidance on how to succeed in finance. For example, he emphasized the importance of asking questions because it helps improve your understanding of the industry. In addition, he explained that it is also important to read outside of your industry to gain a broader understanding and connect with clients. Also, he expressed that timing is everything and one cannot predict what will happen in the future, they can only react. Therefore, there is no right or wrong, but you do need a philosophy to act appropriately in situations.
We thank David for sharing his knowledge with the class, we learned a great deal during his interactive talk!
On March 30th, Charlotte Clegg pitched Panera Bread to the SMIF class. She believed that the job of a portfolio manager is to outperform the market and sectors, not to be satisfied with indexing or achieving average returns. Therefore, even though Panera Bread is not in the S&P500, she explained that it is not only the best restaurant stock to own, but also has outstanding long term growth potential. Panera’s performance (now and in the future) is the best in the fast casual industry and NPD group estimates that fast casual will grow in the double digits through 2022, while the rest of the restaurant industry will seek out growth rates around half a percentage point. Additionally, Panera has just started to take advantage of new market opportunities in the fast growing delivery and catering sectors, which will provide a significant boost to both future revenues and profitability. Therefore, Charlotte emphasized that three key catalysts for Panera in the future: growth in new sales channels, Panera 2.0 (their technological initiative) and the increased trend in healthy eating.
Accordingly, Charlotte recommended to sell 310 shares of XLY (the consumer discretionary ETF) and buy 100 shares of Panera. However, after discussion, the class decided that buying 50 shares of Panera would be best, so we would not be taking on too much active risk. Thus, Charlotte motioned to buy 50 shares of Panera and sell 155 shares of XLY. The motion passed 22 to 5.
On Tuesday, March 28, alumnus Douglas Jamieson lectured to the SMIF class about his career with Gabelli Funds, LLC. Gabelli Funds oversees a variety of actively managed funds, all with a focus on value investing. Jamieson took time to explain the history of value investing, beginning with the seminal works of Ben Graham, through his protege Warren Buffett, to today. Gabelli Funds, through their value investing strategy, has remarkably low investment turnover – just 5% in any given year. Jamieson emphasized that Gabelli’s investment strategy is bottom up, based upon fundamentals, and done in a tax sensitive manner. Gabelli’s 40-50 analysts all have intense knowledge of one specific sector, giving them the required expertise to sift through investment options.
In the Q&A portion, Jamieson spent much of the time discussing the value-added from active management. In the ever-increasing debate between active and passive management, Gabelli Funds firmly believes that active management better shields against downside risk, and is able to identify strategic investment opportunities that passive management cannot.
SMIF thoroughly enjoyed hearing Mr. Jamieson speak, and we thank him for coming into class!
On March 22, after hearing Mr. Luthi speak SMIF listened to Nick’s proposal to add Delta Airlines to the portfolio. Delta is the second largest US airline, after merging with North West Air in 2008. Delta has done remarkably well after their 2006 bankruptcy filing. Nick cited that their bankruptcy taught them tough lessons about inefficient logistics, poor capital structure, and poor cost management. Today, the company is very healthy, with an entirely different capital structure. In most metrics, Delta bests its competitors. They have the lowest missed bag ratio, highest on on time arrivals, and lowest maintenance costs. The company also mitigates labor risks through lack of a unionized workforce. Delta also owns stake in at least one airline on every continent – something Nick believes will benefit the company heavily as emerging markets develop a middle class. Nick motioned to purchase 300 shares of Delta; the motion passed unanimously.