Financials Sector BUSFIN 4228/7225: Advanced

Transcript:Financials Sector BUSFIN 4228/7225: Advanced:
Financials Sector BUSFIN 4228/7225: Advanced Investment Analysis Royce West Ben Raines, Josue Rendon, Joel Pickering, Jack Spellacy Recommendation Recap We recommend the Financials sector be underweight relative to its weighting in the S&P 500 Index in the Student Investment Management (SIM) portfolio. There are many signals that the economy could enter a recession, and we recommend that the SIM portfolio assume a defensive position in the financials sector. Consumer confidence: Index falls to lowest level since Feb 2021 Interest rates: Fed continuously raising rates in response to inflation New car sales: Lowest level year-to-date Stock market: S&P 500 Index down 16% since peak in Jan 2022 GDP growth: Real GDP decreased 1.6% in 22:Q1 Credit card debt and late payments: Increase from 21:Q1 to 22:Q1 Inflation: Annual rate is 9.1% as of May 2022 YTD Stock and Sector Performance Current Holdings The SIM portfolio currently holds four stocks representing 10.8% of the portfolio's value, exactly in line with the SP500's sector weight as of 6/30. We hold two diversified banks and two credit services companies. Financial stocks are very inexpensive currently due to their recessionary risk. Suggested Holdings We recommend adjusting the weight of the fund down from 10.80% to 10.00% to hedge against the financial sector's significant exposure to macro economic risk. American Express has the least upside of our current portfolio and is trading close to our target price for the equity and we recommend selling our stake in the company With the proceeds, purchase additional shares of Discover and JPM, both of which have significant upside, and purchase a stake in Citi. Overview Founded as the Bank of Italy in San Francisco in in the early 1900s One of the largest banks in the world, significant market share in credit and debit card issuance, deposits, wealth management. Consumer Banking Global Wealth and Investing Management Global Markets Global Banking Overview Global payment and travel company Charge and credit payment card products and travel-related services – One of the world's largest travel service providers Global Consumer Services Group, Global Commerical Services, Global Merchant and Network Services Current price is nearing consensus target price of $166 Economic indicators positive for AXP outlook - high reliance on credit lending, low unemployment, demand for housing SELL (HOLD) recommendation – use cash to purchase additional shares of DFS and JPM, and assume stake in C Overview Discover Financial Services started as a Sears