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.
Today, SMIF heard from Haley Calkins, who proposed to add Disney to the Consumer Discretionary sector. Founded in 1923, Disney has grown into a multimedia giant, with revenues deriving from media networks, studio entertainment, and theme parks and resorts. Haley noted that SMIF currently has active risk by not holding Disney; the company currently makes up .80% of the S&P 500 index. Haley made a point to note that Disney is far more diversified than its competitors; though Disney competes with companies such as Comcast, Fox, and Time Warner, none of these companies operate in as many industries as Disney. Haley believes this is the real benefit of the Disney brand – the company is able to generate intellectual property through the creation of movies and media, and then further generate profits from these creations in their theme parks, merchandise, and licensing. She motioned to purchase 230 shares of Disney, funded by the sale of XLY Consumer Discretionary ETF. The motion passed unanimously.
Yesterday in class, Jake Levine proposed to add Visa to the Information Technology sector. Visa is the largest payment transaction company in North America. The company offers their transaction services to Financial Institutions. Jake went to great lengths to explain Visa’s business structure, noting how it is fundamentally different from competitors such as Discover and American Express. These firms, unlike Visa, offer credit. Visa is strictly a transaction technology.
Jake believes Visa is positioned strategically for the future, as he expects gains from Mobile Payment to drive domestic revenue. Currently mobile payment only accounts for 5% of US spending; however this figure is expected to grow to $3 Trillion by the year 2021. Furthermore, Jake believes that with millennial gaining purchasing power, the use of cash payments will fall relative to card payments, in which Visa takes a cut. Jake ultimately motioned to purchase 250 shares of Visa by through a mix of cash and shares of XLP Consumer Staples ETF. The motion passed unanimously.