Recent Unrest

With the recent unrest in Egypt, Libya, and some other nations, the market and the economy have made movements in both directions (positive and negative). Commodities, like silver (which hit a record for the past two decades), gold, and oil are rising. Meanwhile, many stocks, after enjoying some gains, have once more fallen because of various factors, including speculator frenzy.

On a similar note, an article in the Philadelphia Inquirer mentioned that "Higher oil prices also weigh on the U.S. economy by increasing the costs of moving goods and filling gas tanks. A sustained $10 increase in the price of oil translates into a 0.2 percent cut in economic growth over 12 months, according to a recent estimate by economists at Goldman Sachs." With the turmoil in the Middle East and Africa, it seems like oil prices are destined to continue their increase. According to the article, this would mean economic growth will continue to decrease. How will this affect stocks? In general, less economic growth would mean less jobs, less expansion, and less GDP. One would think that we are destined to see further declines in the market as a whole. What does everyone else think of all this? Do you see the need to adjust your strategy and possibly look into stocks that perform better when the market declines?



Source:
http://www.philly.com/philly/business/20110226_Markets_rise_but_still_end_the_week_off_about_2_pct_.html

Portfolio Turnover

My team and I have been discussing and considering portfolio turnover, and we were curious to hear what other teams had to say. In one training session, we were told that there is considerable variance, even among experts, when deciding how often a portfolio should turn over. We were curious if we could come to a consensus, or at least discuss the topic, as an EMC community.
Additionally, and more specifically to this competition, how quickly should we dump a stock which isn't performing well? We understand that much of the grading criteria are strategy-related, but 20% of the grade is performance. How have other teams been striking a balance between sticking to long-term strategy while also seeing good stock-growth?
With this post, we hope to inspire good EMC community discussion. We are interested to hear the thoughts of the professors, students, and our peers.

Report: NCR Corp.

Valiant Management agrees in large with the analysis of the NCR Corp. We think that because of its domination of the self-servicing machine industry and innovative strategies, NCR is a very strong company. Its machines are far more self sufficient, and require far less employee maintenance. Along with its smart cash reader technologies (now the machine can scan cash itself), selling points like these will allow NCR to continuously shut out its competition. As these machines have increased in demand, NCR will automatically gain profit and grow as a result. NCR is one of the only companies in the field to use newer innovations that differentiate themselves from the competition. We foresee not only a growth in America, but possibly an even larger growth in countries like China and India where the ratio of these machines to people is very low. For the most part we see NCR as a great company that will be both a value and growth stock. 

Now for the negatives in NCR. We agree with the analysis of the pension issues, NCR's Pension losses in 2008 have left the company with a pension debt of roughly $1 billion dollars. NCR has handled this debt badly in our opinions. Also the new strategy to change its pension funds from 40% fixed income, to 100% fixed income over the next three years. With bonds so high, we agree with the diagnosis that this is probably not the best strategy. Now where we disagree with the analysis, is in the assessment of NCR's move to try to control  the DVD rental self servicing machine. It is clear that the lifespan of DVD's is limited, and the more money put in, the more attached NCR is to this lifespan. This represents so little of their revenue (paling in comparison to the 70% of revenue that is their ATM business) and their competition has a strong foothold. Yes, NCR will most likely go positive in this area over the next two years, but what about after that? We don't think that DVDs will be used very often in ten, even five years. We understand why the deal with blockbuster makes profit off blockbuster's failure, but Blockbuster is still a dying company, and we think it could drag down NCR's profit with it. When the demand for DVDs ends,  NCR will have to suffer if it puts any more effort into this.

Overall NCR is a great company with strong focus. It is a strong, undervalued investment, especially when its forward P/E is compared with its competitors (see original paper pg. 6). Although, some of its negatives are very scary. It will grow in the coming few years, but after that we really aren't sure.

Stock Report: Walmart

We generally agree with the analysis; however, we think that the authors left out an important detail in their evaluation. It is true that Walmart has dominated among their competitors, that its market capital is significantly larger than its competitors, and that this is an incredibly successful business. However, over the past few months, it has lagged far behind the market averages, whereas Costco and Target have stayed relatively on-par with those averages. This suggests that growth is not the direction Walmart is headed toward, and that it would not make a good growth stock. It would, however make a good value stock because of its overall strength financially and large representation of its market. It also has higher earnings per share than its competitors. Walmart is being run efficiently by buying fewer and/or less expensive goods to sell and through efficient supply chain management. Industry projections expect Walmart to increase in value in the nearby future and that it is currently undervalued. It is a growing company, as shown through historical data and through its recent purchase of UK’s ASDA. This buy suggests that it will be expanding the functionality of its website, and it will be competing with such companies as Amazon.

Twitter-based Investment Decisions

http://www.businessinsider.com/new-hedge-fund-uses-twitter-to-pick-stocks-2010-12

Summary: A new hedge fund will be using 'sentiment analysis' of Twitter, a real-time social networking communication tool, to predict changes in the stock market. By using software that they have developed, they say that they have already been able to successfully predict profitable trades.

It's very interesting that someone is finally using Twitter to make financial decisions. As technologies like Twitter allow for faster and faster communication, they become more useful in financial decision-making. This is because changes in public mood are made public (to those with the ability to analyze it) faster than the effect of those changes on the market.

I'd like to know how long changes in twitter-temperament take to become reflected in market prices, as well as if these predictions have only been valuable for specific sectors of the market (I would predict consumer technology as the most accurately predicted sector, as a result of the type of people who I think use Twitter). It would also be cool to see what other chartable data the Twitter-mood can be correlated to.

Transocean (RIG)

Transocean LTD (RIG) is a Switzerland based oil drilling company. They owned the oil rig that exploded in the Gulf of Mexico under the control of British Petroleum (BP). Unfortunately for Transocean, the explosion caused a plague of bad publicity and hefty legal fees. These costs have been present on the company’s financial statements causing total profit margin to decrease severally. With a cease in offshore oil drilling in the Gulf of Mexico, a few of Transocean’s rigs were no longer in operation. This essentially affected total revenue. Taking a further look into the company, one can see, despite the disaster, they are still an industry leader. Pre-explosion, Transocean was steadily valued at $90/per stock range, after news of the oil spill, stocks plunged to $41.88 in June. Since the company hit rock bottom, stock prices have risen steadily towards the pre-disaster stock price. I believe the trend will continue and even possibly surpass the company’s previous price highs. Several factors that will lead to the continued growth of this company are as follows; as legal matters with the BP disaster wind down, the company can focus more on business operations with fewer distractions. This has already begun to occur; the company has purchased new rigs that boast technological advancements in safety and ease of drilling. The Rig cost $195 million and is scheduled to finish construction in one year. With future expectations of greater total revenue, increased oil drilling demand, and increased profit margin, this company is quite attractive for our team, Yo Investments. Although there can be a further hit on the stock in the short-run, I believe that the company can hit towards same price (pre-explosion) in the long-run. The graph above illustrates this company is on the right track.

Dell negoiating

http://www.marketwatch.com/story/dell-negotiating-possible-compellent-deal-2010-12-09

In this article it talks about how Dell is trying the emerge with Compellent. But they are negotiating a deal so in a way they can make a profit. This is because Dell is making money but in different departments of dell. So in my opinion i think dell should emerge because for the pass couple of months dell has been in a decline phase but since compellent is a big company they will make a big profit. As well, Wells Fargo is trying to emerge with them too.