On Wednesday March 22, SMIF had the pleasure of hearing from John Luthi ’04, the current Director of Investments for the Bucknell Endowment. Before joining Bucknell in 2006, John worked as an analyst at JPMorgan Chase in New York. In class, John took the time to explain the considerations required when investing on behalf of the University. He noted that the endowment has more exposure to equity than a traditional fund in order to generate income in perpetuity. He also took the time to discuss, at length, the Investment Office’s approach towards choosing investment managers. As John said, generating alpha is no easy task. Hearing how the Investment Office sifts through numerous asset managers to find the best was a fascinating topic. We thank John for taking the time to join us in class!
On Tuesday March 21 the class heard from Sean, pitching to add Kraft Heinz to the Consumer Staples sector. Kraft Heinz is the third largest food and beverage provider in North America, formed after the 2015 merger of Kraft and Heinz foods. The company has over 200 brands in 190 countries. Currently, the company is looking to streamline their offerings, focusing more on their largest and most profitable lines. With currently stagnant topline growth, the company has recently been engaging in M&A activity to generate new business. Sean’s major investment thesis came from our lack of diversification in the Consumer Staples sector; SMIF has no exposure to food products. He proposed to add 100 shares of KHC to the portfolio; the motion passed 28:1.
For our second pitch on Wednesday, March 8, the class heard from DJ Magee, who proposed adding Exxon Mobil to the portfolio. DJ believes Exxon Mobil to be a strong addition to the energy sector due to its industry leading cost management. The company is diversified and highly stable. DJ cited a recent selloff in July of 2016 as a strategic justification for buying. He believes the fundamentals of the company are still strong, and that the selloff was not justified. DJ also noted that SMIF has active risk in the portfolio by not holding Exxon Mobil. He motioned to purchase 300 shares of XOM; unfortunately the motion did not pass.
On Wednesday, March 8, Reagan Cerney discussed adding FedEx to the Industrial Sector of the SMIF Portfolio. Reagan believes that SMIF currently lacks diversification within Industrials – adding a logistics company such as FedEx or UPS would help round out our holdings. When comparing FedEx Vs. UPS, Reagan cited that FedEx has faster shipping times, and more European exposure through the acquisition of TNT. Furthermore, much of UPS’ revenue comes from Amazon; FedEx has no such dependence on a single customer. Reagan also believes that FedEx is currently undervalued – their efforts to improve margins should drive heightened profits in the future. She motioned to purchase FedEx; the motion passed unanimously.
On Tuesday, March 7, the SMIF class heard from Rory Bonner, who pitched Eagle Materials (EXP). Eagle Materials is a diversified manufacturing company specializing in the production of slag, concrete, aggregate, gypsum wallboard, and recycled paperboard. With over 50% of Eagle’s revenue coming from government, Rory believes they will benefit from the Trump Administrations increased spending in infrastructure. Rory also cited that currently SMIFs materials exposure is very limited, with only 1 or 2 holdings. Eagle Materials faces competition from companies such as USG, Martin Marietta, and Vulcan, however Eagle’s superior margins are estimated to deliver better long term profits. Rory motioned to purchase 70 shares of EXP; the motion passed 29:1.
Tooba Ali pitched Exelon, a fortune 100 energy company with over 10 million customers in 48 states. Future catalysts for Exelon’s growth are the company’s industry leading power generation and efficiency, and its strong political influence in regulation and law. For example, Exelon’s nuclear power generators have secured subsidy backings to keep themselves afloat. Within 2-3 years, 11 of their 40 nuclear plants will have guaranteed cash flows for the next decade. In addition, Tooba addressed that Exelon has a strong focus on reinvesting for organic growth and technological innovation. Lastly, they have a diverse fuel mix with a focus on nuclear energy, which Tooba thinks will continue in the future.
All in all, Tooba’s pitch was very strong, however the class had concerns regarding the company’s concentration in nuclear energy. As Exelon’s nuclear program is subsidized by the federal government, if the Trump Administration were to cut these subsidies in favor of oil and coal, the company could be left harmed. The class ultimately decided that now was not the time to invest in a company like Exelon.
Adriana Ackerman pitched United Health Care Group to the SMIF class on March 1st. In her pitch she reviewed the managed care industry as a whole, highlighting employer/group plans and government plans. She explained that United Heath offers plans in four major industries: employer & individual, Medicare & retirement, community & state and global. In addition, she outlined the five largest competitors in the managed care space. She believes there will be positive returns in the Managed Care industry due to the future of the Affordable Care Act under a Republican office. Also, she stressed that the company has a much lower Medical Loss Rate than its competitors and they will only benefit more with policy changes in the future due to the Trump administration. Moreover, Adriana believed that we needed to eliminate active risk in the health care sector of our portfolio and this would be the perfect way to do so. Lastly, Adriana felt that United Health’s vertical integration strategy differentiates themselves from their competitors and will remain a driver of top-line and margin growth. Therefore, she motioned to purchase 120 shares of UNH and sell 251 shares of XLV, the motion passed unanimously.
Brett Cleary pitched Albemarle February 28th, 2017. Unfortunately, he was very unlucky with the time of his pitch because Albemarle rallied from around $92 to $101 per share after their earnings release the day prior. However, Brett still had a bullish view on lithium due to the rise of lithium demand (ie. Lithium batteries) and electric vehicles in China. In addition, he explained that lithium prices are expected to stay high until around 2020. For example, the price of lithium carbonates has more than doubled since 2005. Therefore, Brett recommended using cash to buy 20 shares of ALB at the market price. However, after discussion, the class decided to ask Brett to come back the next day after having time to come up with a new suggestion due to the huge spike in the ALB’s stock price. Thus, Brett came back on February 29th with an updated DCF and proposal. He proposed to buy 50 shares of ALB with a limit buy order of $97.50 using available cash later through a put on-board. The motion passed 25:4.