What type of valuation? Relative Value: Selecting

Transcript:What type of valuation? Relative Value: Selecting:
What type of valuation? Relative Value: Selecting the best security in a given sector --The Wall Street approach: Comparative evaluation without having to make purchase decision --Basis of Presentations Intrinsic Value: Selecting an equity security for purchase --Has all the elements of relative value analysis with substantial additional complications --Investment philosophy? What are the investment goals? Philosophical choices directly connected to Sector selection --Macroeconomic factors and relative sector performance: What is working? Sustainable sources of competitive advantage --Figuring out future essentials: Established firms vs. new industries Equity Security Valuation: Some Basics Types of Companies Old Finance, Graham & Dodd types Substantial Physical Assets; Predictable cash flow; Competitive dividend payout; transparent intrinsic value Examples: REITs, Pipelines; Telco’s; Canadian Banks and Insurance Modern Economy types Low or no Dividend payout; Substantial intangibles (internalized or goodwill); Essential sectors dominating in 21st century Examples: Social Media (META); Global Tech (AAPL, MSFT); Semi-conductors (NVDA); Internet/Online (AMZN; GOOG; NFLX) Future Economy Types Green Energy (NPI); EV transportation (TSLA); AI and VI; Disruptors (CRM) Some More Types of Stock Sectors Old School US Financials Moderate to Low Dividend Payout; Complex Financials Payments (V, MA) vs. Capital Mkts (GS, MS, AXP) vs. Banking (C,WFC) Old School Industrials Chemicals (Dow); Gases (Linde); Steels (X); Autos (GM, F) Manufacturers (BA, CAT, HON, MMM) Transportation + Shipping (CP, FDX, DAL) Old School/New School Biopharma Small molecule Pharma + Large molecule Biotech Convergence of two streams (PFE, JNJ, MRK) See FAQ on Research Page Other Important Sectors Healthcare US Private (UNH) vs REIT (CSH.UN) Drugstores (CVS, Walgreens-Boots WBA) Consumer Staples Foods (K) and Sundries (PG) Clothing and Apparel (LULU); Shoes (NKE) Old School/New School Retailers E-commerce (AMZN) vs. Big Box (WMT) Consumer Goods, Construction Logistics and Customer Relationship Marketing Salesforce (CRM); Prologis (PLD) REIT vs non-REIT Entertainment Disney (DIS); Paramount Global (PARA) Smaller Caps: Russell 2000 + TSX Venture Russell 3000 is an index of the 3000 largest market cap US companies  > 90-95% of US equity market cap Russell 2000 is an index of the 2000 smallest cap stocks in the Russell 3000  approx. 7-10% of US market cap, largest company about $8 billion (12/2022) See Russell 2000 FAQ on class webpage TSX-V (Venture exchange) See TSX/TSX-V FAQ on class webpage Almost always single business line  junior miners, SPACs, Life Sciences, etc., ‘start-ups’ that typically do not make money  aka Cash-Burn securities Bottom-Up vs. Top-Down Top-down sector