The Anatomy of a Stock Pitch

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The Anatomy of a Stock Pitch
How to get through the Interview. . .
September 29, 2002
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Agenda

• Overview and Context
• Why is this important?
• How to prepare
• Two Approaches
• What to include
• Putting it all together
• QA

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Why is this Important to You?

• In a few weeks or a few months you will be
  sitting beside across the table from. . .
• You will be asked
• So, what stocks do you like?
• What will be your answer?

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How to prepare
BUY STOCKS

• Watch the market
• (WSJ, Bloomberg, CNBC)
• Pick a sector you really like
• (Automotive, Financial Services, Tech, Consumer
  Products)
• Find out what the experts are saying
• (4th floor Kresge trading room - Merrill
  Lynch/UBS Warburg research etc.)

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Once you have your stock - Two Approaches

• Top down approach
• General to specific
• Start with the macroeconomic, move to sector,
  then stock specifics
• Example
• Stock I like is
• Revlon Cosmetic companies are defensive in the
  current economic environment, the sector is
  generally trading at a discount and Revlon is the
  best managed firm in the industry with a low
  multiple and high earnings quality
• Dell Technology companies were the hardest hit
  in the recession, but I believe the sector will
  rebound in the next few quarters. Economic data
  indicates that commercial spending has increased
  and recent announcements have suggested a
  turnaround. Dell is currently best positioned to
  take advantage of the rebound as it has shifted
  its business in the past year to the corporate
  customer. The companys negative cash conversion
  cycles. . .

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Once you have your stock - Two Approaches

• 2. Bottom up approach
• Start with Stock fundamentals
• Example

Please note these stock picks are fictitious
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What to include

• Valuation
• Consensus earnings estimates, current price
• Determine relevant earnings multiples, DCF with
  caution, technical screens

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What to include

• Be brief
• 3 minutes is about all you want to talk
• Have your facts straight
• Memorize details about the firm book value,
  current price, 52-week range
• Earnings/EBITDA Quality
• Accruals, goodwill impairment, off-balance sheet
  financing, recurring revenue, cash flow as of
  earnings, charges, interest

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Putting it all together

• Organization

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General Organization

• Name of Stock
• 2) Ticker
• 3) Latest Closing Price
• 4) 52-week High and Low

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Business Summary or Strategy
4 Sentences

Paint a vivid color to bring your stock to life
Its your job to SELL Give them reasons to BUY
BUY STOCKS
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Financial Summary

• 2-3 Sentences
• Highlight trends e.g.
• Recently announced record 4th qtr earnings of
  X,
• which beat Street expectations by y.
• - No Accounting minutiae (lose the sale)

Catalyst

• The hook!
• The core why someone should buy the stock NOW!
• Should be something catchy, sexy and compelling

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Supporting Data

P/E, EPS, Dividend Yield Only RELEVANT metrics
(NO P/E for a Startup)

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Prepare to Defend!
- Ideally 3 reasons to buy stock (just in case
asked)
Stick to your story , Defend it. Don't let
them get you rattled Use data,
evidence, catalysts, enthusiasm
to win them over

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Questions and Answers